In this article, we discuss the 10 best defensive stocks to buy now. We also discuss the recent updates on the market and the opinions of some experts.
Defensive stocks tend to remain stable and less affected by economic downturns. These companies operate in sectors that provide essential goods and services, which people need regardless of the economic climate. Defensive stocks mostly include stocks of companies among utilities, consumer staples, and healthcare sectors as they provide basic necessities of life. Companies in these sectors often show less volatility, and often provide steady dividends. They usually offer a safer investment choice during periods of market uncertainty.
US Stocks Surge But Experts Remain Cautious
U.S. stocks are having a great time, which is owed to strong economic data that has reassured investors. The S&P 500 and Nasdaq 100 have seen significant gains, as they are up 4.3% and over 6% over the last 5 days on August 15, respectively. The global markets have also recovered from recent losses, and the US broader market is back from the losses it faced in the first week of August. The investor sentiment remains strong and U.S. equities are seeing continuous inflows. Additionally, Fed officials are hinting at potential rate cuts which support optimism that the U.S. economy is on track for a soft landing.
However, some experts are still concerned about the future of the US economy and markets and hold a more conservative view. According to a July report by J.P Morgan, recent market trends have benefited large, high-quality companies, especially in tech and AI, which have resulted in high market concentration. However, maintaining this momentum in the second half of 2024 could be difficult due to high valuations and investor positioning. The report says that while U.S. market volatility is currently low, it could rise if conditions change.
According to Bruce Kasman, global growth is steady at 2.4%, with improved recoveries in Western Europe and emerging markets, along with a rebound in the manufacturing sector. Despite this, core global inflation is projected to remain around 3% in 2024, which could limit the potential for policy easing. Kasman warned that achieving inflation control and rate normalization might weaken demand and could interact with political factors to cause further inflation and central bank tightening.
Leon Cooperman’s Perspective on the Current Conditions
On August 15, Omega Advisors chairman and CEO, Leon Cooperman shared his perspective on the current economic outlook with CNBC Money Movers. Cooperman expressed a cautious outlook on the economy, which is driven by two main factors. First, he is alarmed by the rapid increase in the U.S. national debt, which has doubled from about $17 trillion in 2017 to approximately $34-35 trillion today. He said that this level of debt growth, which outpaces economic growth, is unsustainable and could lead to a fiscal crisis. However, the exact timing of such a crisis is uncertain. He further added that neither political party is addressing this looming issue.
Secondly, Cooperman compared today’s market conditions to past periods of financial excess, such as the Nifty 50 era in the 1970s, when companies with extremely high valuations eventually went bankrupt. He noted that during those times, the 10-year bond yield was 6.5%, much higher than the current rate of around 3.9%. He believes that if the current bond rate is appropriate, market valuations aren’t too high. However, he suspects that interest rates are too low and anticipates a rise in long-term rates, particularly the 10-year Treasury yield.
While he expects the Federal Reserve to cut short-term rates, which could ease borrowing costs, he believes long-term rates will increase, leading to a decline in bond prices and potentially putting downward pressure on stock valuations. If long-term rates rise significantly, it could make the stock market less attractive and could possibly result in a market decline.
Even though the current year has shown healthy markets with a couple of corrections, Leon Cooperman’s expectations from the markets cannot be ignored. Cooperman has a track record of being one of the most successful investors of the past several decades. If they hold out to be true, investors might look toward more defensive sectors of the market.
With that, we look at the 10 best defensive stocks to buy now.
10 Best Defensive Stocks To Buy Now
Our Methodology
For this article, we used stock screeners to identify over 50 large to mega-cap stocks from defensive sectors such as consumer staples, utilities, and healthcare. We narrowed our list to 10 stocks with positive analyst sentiment and the highest average analyst price target upside as of August 16.
10 Best Defensive Stocks To Buy Now
10. Performance Food Group Company (NYSE:PFGC)
Stock Price as of August 16: $72.88
Average Analyst Price Target Upside as of August 16: 20.7%
One of the best defensive stocks, Performance Food Group Company (NYSE:PFGC), through its subsidiaries, engages in the marketing and distribution of food and related products. The company focuses on providing a diverse range of food items and associated products to different customer groups. It operates through three main segments, Foodservice, Vistar, and Convenience.
The company offers over 300,000 items, including candy, snacks, disposables, beverages, dairy, meats, frozen food, and fresh produce and it caters to more than 300,000 locations. These include independent and chain restaurants, educational institutions, healthcare facilities, and convenience stores.
Performance Food (NYSE:PFGC) has been covered by 15 analysts and has a consensus Buy rating. As of August 16, the average price target of $88 has an upside of 20.7% from the present levels. Additionally, on August 15, BMO Capital analyst Kelly Bania raised the price target on the stock to $87 from $80 and kept an Outperform rating. The analyst highlighted that the company’s Q4 results were robust, leading to a 10.5% increase in EBITDA for FY24. Management has projected a similar 10% EBITDA growth for FY25, despite ongoing challenges in the restaurant and convenience store sectors, according to the analyst. The favorable stock performance following the earnings report was likely enhanced by the news of a major foodservice merger and acquisition of Cheney Bros, given the company’s strong history with integration and realizing synergies, the analyst added.
Performance Food (NYSE:PFGC) has shown promising growth and solid financial health, highlighted by its latest fiscal report for the final quarter of 2024. Revenue increased by 2.2% year-over-year, rising from $14.87 billion to $15.19 billion. This growth is supported by a strong food service segment, which stands out as the largest in its field with annual sales of $29 billion and a segment margin of about 3.5%.
Adding to this positive momentum, the company recently announced a significant acquisition. Performance Food (NYSE:PFGC) plans to acquire Cheney Bros, Inc., a major food service distributor based in Florida, for $2.1 billion. Cheney Bros, generating $3.2 billion in annual revenue, will improve the company’s presence in key southeastern states where it has been underrepresented. This acquisition is expected to expand the company’s customer base and extend its market reach.
The deal is valued at a multiple of 9.9 times EBITDA and includes anticipated cost savings of $50 million, which are expected to materialize in the third year following the acquisition. It is an indication of a strong potential for improved financial performance and efficiency gains post-acquisition. The transaction is set to close in the calendar year 2025 and will bring additional assets, including state-of-the-art facilities and a fleet of around 1,800 tractors and trailers, which collectively cover approximately 23 million miles annually.
With this acquisition, Performance Food (NYSE:PFGC) will not only add to its infrastructure but also gain access to new markets and clients in Florida, Georgia, North Carolina, and South Carolina. The combination of solid revenue growth, strategic expansion, and operational improvements positions the company well for continued success in the competitive food distribution sector.
ClearBridge Investments stated the following regarding Performance Food Group Company (NYSE:PFGC) in its fourth quarter 2023 investor letter:
“Our holdings in the consumer staples sector also helped drive performance. Restaurant foodstuff distributor Performance Food Group Company (NYSE:PFGC) continues to benefit from greater consumer spending on dining. Likewise, Coty, the global beauty company comprised of a market-leading prestige fragrance business and mass cosmetic business, reported strong quarterly earnings with outperformance across all geographic regions and operating segments. With the continued strength of the prestige fragrance market globally, we believe the company’s fundamentals have improved much more than the stock’s valuation.”
9. Constellation Brands, Inc. (NYSE:STZ)
Stock Price as of August 16: $245.45
Average Analyst Price Target Upside as of August 16: 22.22%
Constellation Brands, Inc. (NYSE:STZ) is a well-known company owing to its production and marketing of beer, wine, and spirits. The company has a wide-ranging portfolio featuring prestigious imported beer brands such as Corona Extra, Modelo Especial, and the Modelo Cheladas series. Additionally, it offers a range of premium wines and craft spirits through known labels like The Prisoner Wine Company, Robert Mondavi Winery, Casa Noble Tequila, and High West Whiskey. It is one of the best defensive stocks to buy now.
Constellation Brands (NYSE:STZ) has a Buy rating according to the consensus opinion of 26 analysts. As of August 16, the average price target of $300.00 represents an upside of 22.22% from the current levels.
Constellation Brands (NYSE:STZ) is making a strong case for continued success in the beverage industry, which is owed to its extensive portfolio of well-known brands like Corona, Modelo, Robert Mondavi, and Kim Crawford. In the first quarter of fiscal year 2025, the company reported an increase in total revenue, rising by 5.8% to reach $2.661 billion. This growth was fueled by its beer segment, which saw a robust 8.3% increase. The performance of brands such as Modelo Especial, Pacifico, and Modelo Chelada is to be credited as they significantly boosted sales.
The impressive results in the beer segment are highlighted by the fact that Constellation Brands’ (NYSE:STZ) beer sales grew faster than the broader category by 7.8%.
On July 5, Wells Fargo maintained an Overweight rating on the stock with a $300 price target following the fiscal 2025 Q1 report. While some investors have been cautious due to past stock performance, Wells Fargo believes the company’s fundamentals are solid. The firm believes that the company can see double-digit earnings growth in fiscal 2025 for the first time since 2018. The analyst also suggests that the company’s beer depletions will likely surpass bearish predictions, with the potential for improved beer gross margins.
Furthermore, Constellation Brands’ (NYSE:STZ) Q1 results showed a strong customer base, with Hispanic consumers making up over 50% of its client mix. This demographic is growing rapidly in the U.S., providing a favorable trend for sustained business growth. Although the company expects modest growth in wine and spirits, with revenue projected to rise between 6-7% for FY2025, the strong performance in beer sales and continued expansion of operating income by 8-10% from its segments show a promising future.
8. Brookfield Infrastructure Partners L.P. (NYSE:BIP)
Stock Price as of August 16: $30.96
Average Analyst Price Target Upside as of August 16: 22.74%
Brookfield Infrastructure Partners L.P. (NYSE:BIP) is a real estate investment firm focused on managing investments in real estate and alternative assets, mainly focusing on energy and utilities. The company acquires and manages a diverse range of assets, including utilities, transportation, midstream energy, and data infrastructure. It is among our best defensive stocks to buy now.
Brookfield Infrastructure (NYSE:BIP) sells assets and reinvests the proceeds to improve investor returns. The firm also benefits from a strong deal flow, which facilitates both asset sales and acquisitions across various sectors. Recent transactions include acquiring Triton International, a leading global shipping company, as well as investing in data centers and a semiconductor manufacturing plant in collaboration with Intel Corporation (NASDAQ:INTC). These moves position the company to capitalize on the ongoing advancements in artificial intelligence.
Brookfield Infrastructure (NYSE:BIP) stands out as a possibly strong investment opportunity due to its consistent growth and dynamic investment approach. Over recent quarters, it has shown solid progress, with an 11% increase in funds from operations (FFO) in the first quarter and a 10% year-over-year rise for the second quarter. The acquisition of Triton International, the largest intermodal operator globally, carried out last year significantly supported this growth which has positively impacted their financial results.
The company’s ability to expand its backlog, which grew by 15% to $7.7 billion in Q2, reflects its active engagement in major projects. These projects, such as energy pipeline expansions and data center developments, are essential to sustaining long-term growth. The data infrastructure segment, although currently contributing only 10% to FFO, is expected to become a major growth driver. The company has been investing heavily in this sector and expects rapid expansion that will enhance its overall business performance.
Moreover, Brookfield Infrastructure (NYSE:BIP) plans to raise around $2.5 billion from upcoming asset sales. This capital will likely be reinvested into new opportunities, fueling further FFO and dividend growth. Its focus on both its stable existing sectors and promising new investments in data centers sets a solid foundation for continued success.
Brookfield Infrastructure (NYSE:BIP) has a Strong Buy rating as per the 10 analysts that have covered it. As of August 16, the average price target of $38 target implies an upside of 22.74% to the stock’s current price.
7. Merck & Co., Inc. (NYSE:MRK)
Stock Price as of August 16: $113.53
Average Analyst Price Target Upside as of August 16: 25.08%
Merck & Co., Inc. (NYSE:MRK) is a leading American multinational pharmaceutical company. It was originally established in 1891 as the U.S. subsidiary of the German Merck Group and it became independent after World War I. Today, it is known globally for developing and producing a wide range of medicines, vaccines, biological therapies, and animal health products.
Some of its blockbuster drugs include Keytruda for cancer immunotherapy and Januvia for diabetes. Merck (NYSE:MRK) has a history of significant medical breakthroughs and continues to be one of the top pharmaceutical companies worldwide. In addition, the company has over 80 programs in phase 2 of clinical trials, over 30 programs in phase 3, and over 10 programs under review, which are awaiting FDA approval.
As of August 13, Leerink Partners analyst Daina Graybosch has reaffirmed a Buy rating on Merck (NYSE:MRK) stock and expressed confidence in the company’s future. Despite recent challenges with some drug trials, Graybosch is optimistic about its new treatments, especially for small-cell lung cancer.
The analyst sees potential in upcoming data from the company’s pipeline, which could lead to faster approvals and boost the company’s growth. Graybosch also believes Merck’s (NYSE:MRK) plan to use Keytruda’s existing infrastructure, including a new subcutaneous version, will help protect against competition. Overall, the analyst is positive about the company’s strategy and growth prospects.
At the time of writing on August 16, 27 analysts have covered Merck (NYSE:MRK) stock with an average price target of $142, which represents an upside of over 25% from the current levels. This brings the stock to 7th position on our list of best defensive stocks to buy.
Carillon Tower Advisers stated the following regarding Merck & Co., Inc. (NYSE:MRK) in its first quarter 2024 investor letter:
“After posting lackluster returns in 2023, Merck & Co., Inc. (NYSE:MRK) got off to a strong start in January by raising the long-term sales forecasts for its oncology and cardiology pipelines and reporting solid fourth-quarter results, coupled with strong financial guidance for 2024. Merck shares also finished the quarter strong after receiving U.S. Food and Drug Administration approval in late March for a new cardiology medicine with the potential to contribute significantly to sales growth over the next several years.”
6. Target Corporation (NYSE:TGT)
Stock Price as of August 16: $141.12
Average Analyst Price Target Upside as of August 16: 25.14%
Target Corporation (NYSE:TGT) is a prominent American retailer known for its extensive network of large discount department stores as well as its smaller-format stores, which include TargetExpress and CityTarget.
As one of the major retailers in the U.S., the company manages more than 1,900 locations nationwide. Its stores offer a wide variety of products ranging from household essentials and furniture to electronics, clothing, toys, and groceries. It features a broad assortment of items under both national and private-label brands. Among its more than 45 private labels are brands such as Good & Gather, Market Pantry, and Dealworthy, among others.
36 analysts have covered Target’s (NYSE:TGT) stock a Buy rating and as of August 16, the average price target of $176.60 has an upside of 25.14% from the present levels. The stock is among our best defensive stocks to buy now.
In recent years, Target (NYSE:TGT) has worked to improve its product offerings by forming exclusive partnerships and expanding its brand lines. The company has also improved its digital and omnichannel capabilities, alongside efforts to boost customer loyalty through revamped programs. These initiatives are designed to cultivate customer retention and strengthen sales in a competitive retail market.
In the first quarter, the company reported a 3.1% drop in total revenue compared to the previous year, largely due to weaker same-store sales. However, digital sales showed a modest increase of 1.4%, driven by nearly 9% growth in same-day services. The “Drive Up” feature, which allows customers to pick up their orders without leaving their car, saw a noteworthy 13% rise in sales.
Furthermore, EPS for the quarter was $2.03, slightly below the previous year’s $2.05 but within the forecast range of $1.70 to $2.10 set by management. The relaunch of the Target Circle loyalty program in April has been successful, adding over 1 million new members and reflecting strong engagement with the brand.
On August 7, Wells Fargo analyst Edward Kelly lowered the price target on Target’s (NYSE:TGT) stock to $160 from $175 and kept an Overweight rating. The firm anticipates a solid performance in the upcoming quarter, supported by achievable goals and ongoing margin improvements, although it noted potential challenges in the second half of the year due to broader economic conditions and consumer trends.
Overall, Target’s (NYSE:TGT) efforts to enhance its product mix, improve digital services, and engage customers more deeply position it well for future growth, which makes it a possibly appealing option despite some near-term uncertainties.
5. The AES Corporation (NYSE:AES)
Stock Price as of August 16: $17.27
Average Analyst Price Target Upside as of August 16: 33.14%
The AES Corporation (NYSE:AES) is a Texas-based power company with a presence in 14 countries. The company has evolved from a consulting firm to a major player in electricity generation and distribution. It owns and operates power plants and utilities, which generate electricity from various sources, including coal, gas, hydro, wind, solar, and other renewables. The company serves 2.6 million customers and has a generation portfolio of nearly 35,000 megawatts.
AES Corporation (NYSE:AES) is one of the major clean energy companies that should benefit from the rise of data centers. In Q2, the company demonstrated strong performance and strategic growth. The company signed new agreements totaling 2.5 GW, with 2.2 GW allocated to data center customers and additional agreements expected to support up to 3 GW in new data center load.
The company also finalized significant long-term Power Purchase Agreements (PPAs) for 727 MW of wind and solar energy in Texas and a 310 MW retail supply agreement for Ohio. With a total PPA backlog of 12.6 GW, including 1 GW of new renewables and 976 MW of recently completed projects, the company is on track to add 3.6 GW to its operational portfolio by year-end 2024.
Analysts remain quite bullish on power generation companies including AES Corporation (NYSE:AES) as it has been covered by 13 analysts. The average price target of $23.00 represents an upside of over 33.14% from current levels, as of August 16. It ranks fifth on our list of the best defensive stocks to buy now.
On July 22, Barclays slightly reduced its price target for the stock from $23 to $22 while maintaining an Overweight rating. This adjustment was part of its overall outlook for the utilities sector for the second quarter. Despite the lower price target, Barclays remains optimistic, especially about the growth potential in smaller, emerging data center markets, which could positively impact companies like AES Corporation (NYSE:AES) in the long term.
4. New Oriental Education & Technology Group Inc. (NYSE:EDU)
Stock Price as of August 16: $71.28
Average Analyst Price Target Upside as of August 16: 36.78%
New Oriental Education & Technology Group Inc. (NYSE:EDU) delivers private educational services in China. The company runs through four primary segments, Educational Services and Test Preparation Courses, Online Education and Other Services, Overseas Study Consulting Services, and Educational Materials and Distribution.
Its offerings include after-school tutoring for K-12 students, preparation courses for various tests, language training, and a range of online education options. Beyond academic tutoring, the company provides advanced learning systems and devices to enhance digital education experiences. Additionally, it offers consulting services for students pursuing studies abroad.
Through its Koolearn.com platform, the company delivers an extensive range of online education courses. The company offers its services through a broad network of learning centers, schools, and bookstores, combined with its online presence, reaching a large number of students.
New Oriental Education (NYSE:EDU) is demonstrating robust growth and an expansive business model that sets it apart from competitors focused only on online education. For the fiscal fourth quarter, the company reported a non-GAAP EPS of $0.22. It reported revenues of $1.14 billion, jumping 32.6% year-over-year. This growth was primarily driven by the success of its new educational initiatives and the expansion of its East Buy private label and live-streaming e-commerce ventures.
During the quarter, the company accelerated its expansion in cities with high growth potential, enhancing profitability through increased facility utilization. The company’s network of schools and learning centers grew significantly, reaching 1,025 locations by May 31, 2024, up from 911 in February 2024 and 748 a year earlier. This expansion includes 81 schools as of the end of May, which signifies its commitment to increasing its physical presence.
Additionally, New Oriental Education’s (NYSE:EDU) overseas test preparation and study consulting services saw growth of about 17.7% and 17.3% year-over-year, respectively. Domestically, the test preparation business for adults and university students also performed well, with a growth rate of approximately 16.4% year-over-year. This broad range of services and the ability to adapt to market demands highlight its strength and versatility.
For the first quarter of fiscal year 2025, the company expects strong revenue growth. It has projected total net revenues to range between $1.25 billion and $1.28 billion, which reflects a year-over-year increase of 31% to 34%. This optimistic forecast, combined with its ongoing expansion and successful business initiatives, suggests a promising future for New Oriental Education (NYSE:EDU) in the education sector.
As per the opinion of 31 analysts, New Oriental Education (NYSE:EDU) has a Strong Buy rating. The average price target of $97.50 implies an upside of 36.78% from the present levels, as of August 16. It is among our best defensive stocks to buy now.
3. Centrais Elétricas Brasileiras S.A. – Eletrobrás (NYSE:EBR)
Stock Price as of August 16: $7.46
Average Analyst Price Target Upside as of August 16: 43.23%
Centrais Elétricas Brasileiras S.A. – Eletrobrás (NYSE:EBR) is the largest power utility company in Latin America and one of the largest in the world. With a generating capacity that constitutes 23% of Brazil’s total, the company focuses heavily on clean energy, with 97% of its capacity derived from low greenhouse gas emission sources.
Up until 2022, the Brazilian federal government held over 50% of Eletrobrás’ (NYSE:EBR) shares, which were reduced to nearly 40% in 2022, adding international investors such as GIC Private Limited and the Canada Pension Plan Investment Board. Nevertheless, the company’s voting structure ensures that the federal government retains majority control over the company.
According to the company, it had an installed generation capacity of 44,654.5 megawatts (MW), making up 22% of Brazil’s total capacity, by the end of 2023. The capacity distribution includes 65% from fully owned projects, 33% from Special Purpose Entities (SPEs), and 2% from joint ventures. The company increased its capacity by 2,095 MW in 2023, including new additions and consolidations, though it also experienced a 128 MW decrease due to a share swap.
Eletrobrás’ (NYSE:EBR) capacity is predominantly low in greenhouse gas emissions, with 94.6% derived from hydroelectric sources. It holds 36% of Brazil’s low-emission capacity. In early 2024, the company sold its coal and natural gas thermoelectric assets as part of its commitment to achieving net zero emissions by 2030.
Eletrobrás (NYSE:EBR) has been covered by 10 analysts and all of them maintain a Buy-equivalent rating on the stock. The average price target of $10.68 represents a 43.23% upside to August 16 levels, making it the 3rd best defensive stock to buy now.
On July 17, Goldman Sachs started coverage of Eletrobrás (NYSE:EBR) with a Buy rating and a target price of $10 per share, as reported by The Fly. The firm believes that utility companies in Brazil are currently undervalued and it sees a good chance for the company to invest in new projects with promising returns. The firm noted that Eletrobrás (NYSE:EBR) and another recently privatized company, Copel, are expected to reduce costs and improve their operations, and they could increase shareholder returns with higher dividends in the next year.
2. Vistra Corp. (NYSE:VST)
Stock Price as of August 16: $80.14
Average Analyst Price Target Upside as of August 16: 46.62%
Vistra Corp. (NYSE:VST) is a U.S.-based prominent independent power producer, operating across 20 states and the District of Columbia. It operates as an integrated retail electricity and power generation company and delivers essential energy resources to households, businesses, and communities. It is among our best defensive stocks to buy now.
The company’s generation assets total around 37,000 megawatts and include a broad mix of energy sources such as natural gas, nuclear, coal, solar, and battery storage. Additionally, its retail operations involve selling electricity and natural gas directly to consumers, while it also participates in the wholesale electricity market.
Vistra (NYSE:VST) is well-positioned to thrive in the evolving energy landscape, particularly as global electricity consumption continues to climb. According to the International Energy Agency (IEA), data centers, which used 460 terawatt-hours (TWh) of electricity in 2022, are expected to see their energy needs double to over 1,000 TWh by 2026.
In the U.S., which houses a significant share of these data centers, electricity use is forecasted to increase from 200 TWh in 2022 to 260 TWh by 2026. This surge in demand represents about 6% of the nation’s total power consumption. The company is well-equipped to meet this rising demand due to its diverse energy generation portfolio. Its energy source mix gives it an edge as the energy market shifts toward lower-carbon solutions.
Vistra’s (NYSE:VST) acquisition of Energy Harbor, which brought nuclear power assets into its fold, improves its ability to create direct power purchase agreements with major clients, which can further strengthen its market presence.
With its strong brands like TXU Energy and a well-diversified energy generation portfolio, the company remains a formidable player in the energy sector. It is set to capitalize on the increasing power demand, driven by its mix of sustainable and efficient energy sources, making sure it stays competitive and continues to grow.
As per the consensus opinion of 13 analysts that have covered Vistra (NYSE:VST), it has a consensus Buy rating. The average price target of $117.50 represents an upside of 46.62% from the current levels, as of August 16.
Meridian Hedged Equity Fund stated the following regarding Vistra Corp. (NYSE:VST) in its first quarter 2024 investor letter:
“Vistra Corp. (NYSE:VST) is an integrated retail electricity and power generation company based in Irving, Texas. It operates in 12 states and six of the seven competitive markets in the U.S. Vistra’s retail brands serve approximately 2.9 million customers and its power generation fleet totals approximately 41,000 megawatts of natural gas, nuclear, coal, and solar facilities. Vistra was a top performer in the strategy over the past quarter, with its shares rallying over 80%. A key driver has been the thesis that the projected growth of power-hungry data centers, spurred by the rise of generative AI, will increase electricity demand and power prices. This is expected to significantly benefit incumbent power generators like Vistra. The company’s efficient generation portfolio, especially its nuclear and natural gas plants, is well-positioned to capitalize on rising demand, scarcity pricing, and ancillary services in the Texas power market. Vistra is also pursuing opportunities to potentially sign high-margin power offtake agreements directly with data center customers for its nuclear plants, similar to a recent deal by peer Talen Energy and Amazon. We continue to like Vistra’s strong free cash flow generation supporting continued share buybacks and debt reduction, synergies from the recent Energy Harbor acquisition, and a favorable power market backdrop with rising spark spreads. We trimmed the stock following its strong performance during the period.”
1. Royalty Pharma plc (NASDAQ:RPRX)
Stock Price as of August 16: $27.20
Average Analyst Price Target Upside as of August 16: 58.24%
Royalty Pharma plc (NASDAQ:RPRX) functions as a purchaser of biopharmaceutical royalties and a funder for advancements in the biopharmaceutical sector within the U.S. The company focuses on acquiring and managing royalties and intellectual property that generate revenue in the biopharmaceutical field.
The company collaborates with biotech and pharmaceutical companies to provide the necessary funding for drug development. In return, the company shares in the revenue from the successful commercialization of these new drugs.
It holds royalties for more than 35 approved products, including well-known medications like Vertex Pharmaceuticals’ cystic fibrosis treatments and Imbruvica, a blood cancer drug distributed by AbbVie and Johnson & Johnson. Additionally, its portfolio includes royalties from 14 products still in development, targeting a range of therapeutic areas such as rare diseases, cancer, and neuroscience.
Royalty Pharma (NASDAQ:RPRX) has been covered by 9 analysts and 8 of them have given it a Buy rating. The average price target of $43.05 implies an upside of 58.24% to the stock’s current price, as of August 16. It tops our list of the best defensive stocks to buy now.
The company presents a possibly compelling investment opportunity as it uses its dominant position in the life sciences funding sector well. With a market share of approximately 60% since 2012, it is a leading player in financing life sciences innovations. Over the years, the company has significantly expanded its portfolio, growing from managing just three royalties in the 1990s to deploying over $20 billion in royalties today.
The company’s unique model involves funding drugs that are nearing full approval, which helps manage risks associated with early-stage investments. This approach has allowed Royalty Pharma (NASDAQ:RPRX) to build a strong portfolio centered around some of the most successful drugs in the healthcare industry.
For instance, in the second quarter of the fiscal year, it reported $608 million in portfolio receipts, marking a 12% increase from the previous year. This growth was primarily driven by strong sales in its cystic fibrosis portfolio, as well as revenue from GSK’s Trelegy, Tremfya, and Evrysdi.
Investors might find Royalty Pharma (NASDAQ:RPRX) attractive due to its consistent performance and shareholder-friendly practices. The company’s belief that its intrinsic value exceeds the current stock price led to a significant share buyback program as mentioned in its Q2 earnings call. In Q2 alone, the company repurchased $115 million worth of shares. This move reflects management’s confidence in their capital allocation strategy and their commitment to enhancing shareholder value.
Furthermore, it has already utilized $400 million of the $1 billion repurchase authorization approved by the board in early 2023. It is a proactive approach to returning capital to shareholders, which combined with its substantial market presence and successful royalty investments, solidifies Royalty Pharma’s (NASDAQ:RPRX) position in the industry.
Patient Capital Opportunity Equity Strategy stated the following regarding Royalty Pharma plc (NASDAQ:RPRX) in its Q2 2024 investor letter:
“While Royalty Pharma plc (NASDAQ:RPRX) is in the health care space, it is more like an investment firm that buys royalty assets in the healthcare space. The company has an extremely strong track record, running the business for over 20 years as a private fund before bringing it public. The market opportunity for external royalty funding has only grown as early-stage start-ups need funding and legacy players are looking to lower their debt levels. We think Royalty Pharma is perfectly positioned as the partner of choice. The company is disciplined, maintaining deal internal rate of returns (IRRs) in the low-teens despite the higher interest rate environment. We think as the company continues to deliver as a public company, the market will start paying attention.”
While we acknowledge the potential of Royalty Pharma plc (NASDAQ:RPRX) to grow, 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 NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
Read Next: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
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