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.
Defensive stocks are stocks that generate relatively stable performances regardless of the market cycle. Defensive stocks generally don’t fall as much as the overall market in recessionary times and they might not do as well as the market in more expansionary times. Examples of defensive stocks are leading consumer staples that produce or sell necessities that are in demand throughout the market cycle. Other defensive stocks have very wide moats and substantial competitive advantages that allow them to largely maintain their financial performance during recessions.
Given their relatively stable performances, many defensive stocks pay dividends that are pretty consistent. Many of the same defensive stocks have also raised their annual dividends for many consecutive years. If interested also check out 12 Best Consumer Staple Stocks.
It should be noted that defensive stocks may not always remain defensive stocks because industries and company management constantly change. If an industry undergoes secular decline, defensive stocks can underperform. Similarly if a formerly defensive company’s management decided to overpay for an acquisition, the stock might not do well either.
Given the uncertainty, it could be a good idea for long term investors to own a well diversified portfolio of stocks across many different sectors.
2022 has been a challenging year in the market as the Federal Reserve has increased interest rates six times to fight inflation. Although October’s core inflation data has shown some positive signs that inflation could be peaking, St. Louis Fed President James Bullard recently said he thought interest rates might need to rise to 5% or higher and stay there until into 2024 before the U.S. central bank can begin to normalize its monetary policy again.
Given the interest rate increases and the expected economic slowdown in 2023, the S&P 500 has declined 17.5% year to date and the NASDAQ has declined 30.6% year to date.
Methodology
For our list of 12 Best Defensive Stocks to Buy Now, we took 12 stocks that have defensive qualities that have outperformed the S&P 500’s decline of 17.5% year to date in 2022.
We then ranked the 12 stocks based on the number of hedge funds in our database that owned shares of the same stock at the end of Q3 2022.
12 Best Defensive Stocks to Buy Now
12. Archer Daniels Midland Company (NYSE:ADM)
Number of Hedge Fund Holders: 37
Year to Date Performance as of 11/29: 42.07%
Archer Daniels Midland Company (NYSE:ADM) is one of the world’s leading agricultural origination and processing companies. In terms of its services, Archer Daniels Midland Company (NYSE:ADM) supports farmers with personalized services and innovative technologies. The company also takes natural products and turns them into staple foods. Given demand for food has always been strong, demand for Archer Daniels Midland Company (NYSE:ADM)’s services have been strong as well.
With the Russia Ukraine war, food prices have increased in many parts of the world and Archer Daniels Midland Company (NYSE:ADM)’s earnings have increased as a result. Shares of Archer Daniels Midland Company (NYSE:ADM) have increased 42.07% year to date despite the S&P 500 declining 17.5% in the same time period. Although the company’s earnings could normalize if the war ends and the stock could underperform depending on how its valuation changes, Archer Daniels Midland Company (NYSE:ADM) still has a high quality defensive business in the long term.
Alongside Johnson & Johnson (NYSE:JNJ), Mastercard Incorporated (NYSE:MA), and Visa Inc. (NYSE:V), Archer Daniels Midland Company (NYSE:ADM) is a defensive stock that many hedge funds in our database owned at the end of the third quarter.
11. Constellation Brands, Inc. (NYSE:STZ)
Number of Hedge Fund Holders: 43
Year to Date Performance as of 11/29: 0.32%
Constellation Brands, Inc. (NYSE:STZ) has a portfolio of in-demand consumer products such as Corona as well as premium wine and spirit brands. In Q2 FY23, Constellation Brands, Inc. (NYSE:STZ)’s net sales rose 12% year over year to $2.655 billion and its operating income rose 10% year over year to $813 million. The company also repurchased $393 million in shares. Despite the markets weakness, shares of Constellation Brands, Inc. (NYSE:STZ) have increased 0.32% year to date as of November 29.
ClearBridge Select Strategy commented on Constellation Brands, Inc. (NYSE:STZ) in a Q2 investor letter,
”Our investment philosophy is to lean into growth, owning companies that control their own destinies, are taking market and mind share and are levered to secular tailwinds such as elevating efficiency and implementing data-driven decisions. At the same time, we have been tactically pivoting the portfolio to favor companies with less risk to near-term earnings and revenue numbers. Monster Beverage (MNST) and Constellation Brands, Inc. (NYSE:STZ), two beverage makers we added at advantageous prices in 2021, are examples of steady compounders that have held up well through the equity downturn.”
Given 43 hedge funds in our database of 920 elite funds owned shares at the end of Q3, Constellation Brands, Inc. (NYSE:STZ) ranks #11 on our list of 12 Best Defensive Stocks to Buy Now.
10. Lockheed Martin Corporation (NYSE:LMT)
Number of Hedge Fund Holders: 53
Year to Date Performance as of 11/29: 36.61%
Given it is an industrials stock, Lockheed Martin Corporation (NYSE:LMT) is less defensive than some other stocks on this list. As a result, its stock could be more volatile than a leading consumer staple company. Nevertheless, given the company’s wide moat, Lockheed Martin Corporation (NYSE:LMT) is still considered a defensive stock if it maintains its market share as demand for defense will likely remain strong despite any economic slowdown. Lockheed Martin Corporation (NYSE:LMT) shares have surged 36.61% year to date as of 11/29. The stock ranks #10 on our list of 12 Best Defensive Stocks to Buy Now.
9. McDonald’s Corporation (NYSE:MCD)
Number of Hedge Fund Holders: 53
Year to Date Performance as of 11/29: 1.05%
McDonald’s Corporation (NYSE:MCD) was one of the few stocks that didn’t fall during the Great Recession as its sales growth in 2008 was actually greater than 2006 or 2007. Given the stock’s rally of 1.05% year to date, the market seems to think McDonald’s Corporation (NYSE:MCD) will continue to do well even if there is a recession next year.
In tough economic times, demand for McDonald’s Corporation (NYSE:MCD)’s burgers and fries has remained strong historically, allowing the company to maintain its profitability. Out of the 920 hedge funds in our database, 53 owned shares of McDonald’s Corporation (NYSE:MCD) at the end of Q3.
8. Dollar General Corporation (NYSE:DG)
Number of Hedge Fund Holders: 59
Year to Date Performance as of 11/29: 7.38%
Dollar General Corporation (NYSE:DG) is a leading discount retailer whose shares have increased 7.38% this year as higher inflation has caused some shoppers to buy more competitively priced products. In Q2 2022, Dollar General Corporation (NYSE:DG)’s net sales rose 9% year over year to $9.4 billion and its same store sales rose 4.6% year over year. Diluted earnings per share rose 10.8% year over year to $2.98. Dollar General Corporation (NYSE:DG) also repurchased $349 million of its common stock in the second quarter and on August 24, 2022, the company’s board increased the authorization under the share repurchase program by $2.0 billion.
7. The Coca-Cola Company (NYSE:KO)
Number of Hedge Fund Holders: 59
Year to Date Performance as of 11/29: 5.36%
The Coca-Cola Company (NYSE:KO) is a leading maker of beverages whose demand doesn’t change all that much during economic downturns. Despite the challenging macroeconomic headwinds with high inflation this year and a potential recession in 2023, The Coca-Cola Company (NYSE:KO) shares have still rallied 5.36% year to date. In Q3, The Coca-Cola Company (NYSE:KO)’s net revenues rose 10% year over year to $11.1 billion and its organic revenues rose 16% year over year. Adjusted EPS rose 7% year over year to $0.69.
6. Walmart Inc. (NYSE:WMT)
Number of Hedge Fund Holders: 68
Year to Date Performance as of 11/29: 5.75%
Walmart Inc. (NYSE:WMT) is a leading retailer that offers competitive pricing for many products and groceries. Given high inflation, customers have bought more items at Walmart Inc. (NYSE:WMT) as a result. In Q3 FY23, the company’s U.S comparable sales rose 8.2% year over year and Wal-Mart International net sales increased 7.1% year over year despite the strong dollar headwind. Shares of Walmart Inc. (NYSE:WMT) have rallied 5.75% year to date despite the broader market weakness.
Like Walmart Inc. (NYSE:WMT), Johnson & Johnson (NYSE:JNJ), Mastercard Incorporated (NYSE:MA), and Visa Inc. (NYSE:V) are defensive stocks that many hedge funds in our database owned at the end of Q3 2022.
Click to continue reading and see 5 Best Defensive Stocks to Buy Now.
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Disclosure: None. 12 Best Defensive Stocks to Buy Now is originally published on Insider Monkey.
