In this article, we discuss the 10 defensive stocks in billionaire Ray Dalio’s latest portfolio. If you want to skip our analysis of Dalio’s views on the macro-economic environment, go directly to 5 Defensive Stocks in Billionaire Ray Dalio’s Latest Portfolio.
Ray Dalio, the founder of Bridgewater Associates, shared his sentiments on the economic environment through a LinkedIn post on Wednesday, June 21. Dalio thinks that fighting inflation by swiftly increasing interest rates will not improve the economic circumstances.
In the post, he highlighted that raising interest rates reduces inflation as people are forced to spend less. However, the economic circumstances do not improve because the buying power of the masses also declines. The co-Chief Investment Officer of the largest hedge fund in the world with an asset under management (AUM) of over $150 billion also added that the Federal Reserve’s policies could not combat inflation without weakening the economy. Meanwhile, in the long run, the balancing act between controlling inflation without straining the economy will result in stagflation, where growth becomes weak, and inflation is also not under control. This will further make it more challenging for the Federal Reserve to chart its way forward.
Investors do not consider defensive stocks as attractive as high-growth aggressive stocks, but they are safer investment options during an uncertain economic situation. These defensive stocks usually belong to consumer staples and healthcare sectors and are certain to perform in a downturn. This is because they have a solid and established business model that generates earnings in every phase of the economic cycle. Some of the notable defensive stocks in Ray Dalio’s portfolio are Coca-Cola Company (NYSE:KO), Johnson & Johnson (NYSE:JNJ), and Procter & Gamble Company (NYSE:PG).
Our Methodology
Let’s begin our list of 10 defensive stocks in billionaire Ray Dalio’s latest portfolio. These stocks have been picked from the Q1 2022 portfolio of Bridgewater Associates. The stocks have been ranked in ascending order according to their weightage in the billionaire’s portfolio. These 10 stocks take up around 24% of the total portfolio.
We have analyzed the company’s business fundamentals, analyst ratings, and hedge fund sentiment. Over 900 funds were tracked by Insider Monkey at the end of Q1 2022 to determine the hedge fund sentiment concerning each company.
Defensive Stocks in Billionaire Ray Dalio’s Latest Portfolio
10. Colgate-Palmolive Company (NYSE:CL)
Number of Hedge Fund Holders: 50
Ray Dalio’s Bridgewater Associates’ Holdings: $199,238,000
Percentage of Ray Dalio’s Bridgewater Associates’ Portfolio: 0.8%
Stock Price as of June 24: $80.38
Colgate-Palmolive Company (NYSE:CL) is a New York-based household and consumer products company with a presence in over 200 countries through its subsidiaries.
Christopher Graja at Argus pinpointed Colgate-Palmolive as a “high-quality stock” during these uncertain economic circumstances. In a note issued to investors on June 17, the analyst maintained a Buy rating on Colgate-Palmolive Company (NYSE:CL) stock with a target price of $90. Mr. Graja stated that Colgate-Palmolive Company (NYSE:CL) intends to fight the impact of inflation and achieve its long-term financial objectives by focusing on innovative products that will provide the organization control over pricing. Furthermore, Colgate-Palmolive Company (NYSE:CL) is also working on reducing costs and streamlining its operations to improve efficiency.
The analyst also anticipates the company to increase its quarterly dividend. The dividend yield of Colgate-Palmolive Company (NYSE:CL) stands at around 2.5%, which is 90 basis points (bps) lower than the 10-year Treasury yield of 3.4%. Colgate-Palmolive Company (NYSE:CL) boasts a rich history of paying out a dividend every year since 1895. The company has been increasing its annual payout for the last 60 consecutive years. This makes the company a member of the prestigious Dividend Aristocrat list and also a Dividend King.
Colgate-Palmolive Company (NYSE:CL) was mentioned in the Q1 2021 investor letter of First Eagle Investment Management. Here’s what the firm said:
“The leading detractors in the quarter (included) Colgate-Palmolive Company. After a strong 2020 fueled in part by lockdown-driven demand, consumer staples stocks generally cooled during the first quarter as investors shifted attention to the more economically sensitive areas of the market likely to benefit from re-openings and improved discretionary spending. The effects of this rotation could be seen in the share price underperformance of names like Colgate-Palmolive.”
9. Target Corporation (NYSE:TGT)
Number of Hedge Fund Holders: 50
Ray Dalio’s Bridgewater Associates’ Holdings: $280,792,000
Percentage of Ray Dalio’s Bridgewater Associates’ Portfolio: 1.13%
Stock Price as of June 24: $150.42
Target Corporation (NYSE:TGT) is a Minneapolis, Minnesota-based big-box retailer.
The stock experienced the biggest single-day decline in price since the Black Monday event in 1987 following its Q1 2022 quarterly results. Target Corporation (NYSE:TGT) stock declined further as the company reduced its annual guidance for FY22. This resulted in the stock price falling below the $140 level as opposed to a 52-week high of $268.98 in November 2020. The quarterly results highlighted multiple challenges for the company as it held excess inventory and faced supply chain disruptions. The excess inventory resulted in a rise in logistics and warehousing costs for the retailer.
However, these problems are expected to subside in the short term. Target Corporation (NYSE:TGT) intends to liquidate the excess inventory through markdowns and other promotions. Regarding supply chain disruptions, Target CEO Brian Cornell highlighted that the supply chain is getting better and strong performance is expected during the second half of this year. He made these comments during his speech at the Economic Club of New York on Tuesday, June 21.
On June 9, Target Corporation (NYSE:TGT) announced a 20% increase in the quarterly dividend. The management announced a quarterly dividend per common share of $1.08, up from 90 cents in the previous quarter. The dividend will be paid on September 10. Target Corporation (NYSE:TGT) boasts a trailing-three-year return on equity of 48.9%, which is considerably higher than the sector average of 17.2%. Moreover, the company’s trailing-three-year return on invested capital stands at 26.04%, over three times more than the industry average of 7.71%. Analysts anticipate the company to generate inflation-adjusted returns that are 2.5x in comparison to the S&P 500 or 23x over the following 30 years. Target Corporation’s (NYSE:TGT) strong business fundamentals make it a solid defensive stock in times of uncertainty.
Here’s what Nelson Capital Management said about Target Corporation (NYSE:TGT) in its Q2 2021 investor letter:
“We added Target (tkr: TGT) to our consumer staples sector. Target offers a broad array of products in owned and known brand items at affordable prices. Its omnichannel fulfilment centers allow customers to receive their items via in-store pickup, curbside pickup, same-day shipping and regular shipping while simultaneously reducing operating costs. With a significantly lower valuation than peers and a unique operating strategy, Target is an attractive holding.”
Target Corporation (NYSE:TGT) was held by 50 hedge funds at the end of Q1 2022.
8. Abbott Laboratories (NYSE:ABT)
Number of Hedge Fund Holders: 68
Ray Dalio’s Bridgewater Associates’ Holdings: $360,457,000
Percentage of Ray Dalio’s Bridgewater Associates’ Portfolio: 1.45%
Stock Price as of June 24: $109.45
Abbott Laboratories (NYSE:ABT) is a Chicago, Illinois-based healthcare and medical devices company.
On June 24, Marie Thibault at BTIG gave Abbott Laboratories (NYSE:ABT) stock a Buy rating with a target price of $130. The analyst highlighted that the medical technology and digital health companies have suffered without discrimination, and this has caused companies having solid fundamentals and healthy operational activity to lose their market value. Thibault added that she prefers companies having significant cash balances along with a plan of achieving cash-flow breakeven. Abbott Laboratories (NYSE:ABT) finished Q1 2022 with a cash balance of $8.16 billion.
Abbott Laboratories (NYSE:ABT) has been increasing its dividend consistently for the last 50 years and is a part of the Dividend Aristocrat list. Following a 25% increase in 2021, the quarterly dividend saw a rise of 4.4% to $0.47 per share in 2022. Abbott Laboratories (NYSE:ABT) also recorded a 29.6% YoY increase in organic growth last year. The company’s consistent growth and a strong commitment to delivering returns have made it capture the attention of defensive investors.
Richie Capital Group discussed its outlook on Abbott Laboratories (NYSE:ABT) in its Q4 2021 investor letter. Here’s what the firm said:
“Abbott Labs (ABT – up 20.08%) – Abbot Labs continues to benefit from resurging demand for Covid testing kits. The company is planning to increase their monthly production of BinaxNOW athome rapid tests to 100M a month, a 43% increase from current levels.”
Out of the 912 hedge funds tracked by Insider Monkey at the end of Q1 2022, 68 funds held a stake in Abbott Laboratories (NYSE:ABT).
7. McDonald’s Corporation (NYSE:MCD)
Number of Hedge Fund Holders: 58
Ray Dalio’s Bridgewater Associates’ Holdings: $571,044,000
Percentage of Ray Dalio’s Bridgewater Associates’ Portfolio: 2.3%
Stock Price as of June 24: $247.90
McDonald’s Corporation (NYSE:MCD) is a Chicago, Illinois-based fast-food chain with a presence in over 118 countries.
On June 22, Peter Saleh at BTIG maintained a Buy rating on McDonald’s Corporation (NYSE:MCD) with a price target of $280 following a channel check with franchisees that reflected growth in sales. The analyst added that the comparable store sales improved during Q2 2022 despite the record increase in fuel prices and other inflationary pressures. The increase in sales was driven by the breakfast menu, better delivery services, and the loyalty program. McDonald’s Corporation (NYSE:MCD) also increased the prices of several items on the menu to counter the impact of the rise in commodity prices and salaries.
McDonald’s Corporation (NYSE:MCD) is considered a defensive stock as it provides a hedge against economic uncertainty due to global diversification. Furthermore, Dennis Geiger at UBS stated that McDonald’s Corporation (NYSE:MCD) is “well-positioned as a high quality, defensive compounder” as it has been able to maintain strong sales momentum due to brand loyalty. McDonald’s Corporation’s (NYSE:MCD) EV-to-forward EBITDA multiple is valued at 18.7x, reflecting a premium of 8% to competitors.
As of Q1 2022, McDonald’s Corporation (NYSE:MCD) was held by 58 hedge funds.
6. Walmart Inc. (NYSE:WMT)
Number of Hedge Fund Holders: 60
Ray Dalio’s Bridgewater Associates’ Holdings: $600,451,000
Percentage of Ray Dalio’s Bridgewater Associates’ Portfolio: 2.42%
Stock Price as of June 24: $123.72
Walmart Inc. (NYSE:WMT) is a Bentonville, Arkansas-based retail company that operates a chain of discount department stores, hypermarkets, and grocery stores across 24 countries.
Walmart Inc. (NYSE:WMT) organized a shareholder’s meeting on June 6 and reiterated its commitment to achieving its FY23 guidance. This was a positive development for the firm as the retail sector has been under immense pressure since Q1 2022 results started being reported. Although Walmart Inc. (NYSE:WMT) has to work through liquidating some excess inventory, analysts are bullish on the stock due to the company’s stable consumer base. Following the shareholder’s meeting, Simeon Gutman at Morgan Stanley maintained an Overweight rating on Walmart Inc. (NYSE:WMT) stock with a price target of $156.
Walmart Inc. (NYSE:WMT) was held by 60 hedge funds at the end of Q1 2022.
In addition to Walmart Inc. (NYSE:WMT), Ray Dalio also has a stake in popular companies such as The Coca-Cola Company (NYSE:KO), Johnson & Johnson (NYSE:JNJ), and the Procter & Gamble Company (NYSE:PG) as of Q1 2022.
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Disclose. None. 10 Defensive Stocks in Billionaire Ray Dalio’s Latest Portfolio is originally published on Insider Monkey.
