In this article, we discuss the 12 best defensive stocks to buy right now.
A notable event influencing current market sentiment is the recent selloff in technology stocks, primarily driven by speculations surrounding China’s DeepSeek AI model. This incident has underscored the market’s fragility, with key indicators pointing to potential instability. For instance, heavy betting on US tech stocks and rising bond yields have made equities less appealing compared to government debts, challenging the equity risk premium. In this context, the importance of defensive stocks becomes increasingly evident. Defensive stocks, also known as non-cyclical stocks, are those that provide consistent dividends and stable earnings regardless of the state of the overall market. They are typically found in sectors such as utilities, consumer staples, and healthcare.
Read more about these developments by accessing 10 Best AI Data Center Stocks and 10 Buzzing AI Stocks According to Goldman Sachs.
For example, companies that produce or distribute essential goods like food, beverages, and hygiene products tend to maintain steady cash flow and predictable earnings during both strong and weak economies. Dividends play a crucial role in investment strategies, offering both immediate income and long-term financial benefits. They represent a portion of a company’s earnings distributed to shareholders, typically on a quarterly basis. Historically, dividends have been a substantial component of total returns in the stock market. According to S&P Dow Jones Indices, since 1936, dividends have accounted for more than one-third of the total equity return of the S&P 500, with capital appreciation making up the other two-thirds.
Read more about these developments by accessing 30 Most Important AI Stocks According to BlackRock and Beyond the Tech Giants: 35 Non-Tech AI Opportunities.
For this article, we selected stocks that have solid businesses with recurring revenue streams, reliable dividend payouts, and burgeoning growth pipelines. These stocks are also popular among hedge funds. 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).
Stocks
Best Defensive Stocks To Buy Right Now
12. Colgate-Palmolive Company (NYSE:CL)
Number of Hedge Fund Holders: 54
Colgate-Palmolive Company (NYSE:CL) makes and sells consumer products. The firm specializes in consumer staples, including oral care, personal care, and home care products. These everyday essentials maintain consistent demand regardless of economic conditions, ensuring steady revenue streams. The company has an extensive international presence that mitigates risks associated with regional economic fluctuations. Notably, Latin America accounts for approximately 25% of total sales for the business, providing a balanced revenue mix that enhances resilience against localized downturns. In the third quarter of 2024, the company reported net sales of $5.03 billion, a 2.4% increase from the same period in the previous year. This growth was driven by a 3.7% rise in overall volume, despite a 3.2% decrease in pricing in North America. The gross margin expanded by 260 basis points to 61.1%.
11. PepsiCo, Inc. (NASDAQ:PEP)
Number of Hedge Fund Holders: 58
PepsiCo, Inc. (NASDAQ:PEP) manufactures, markets, distributes, and sells various beverages and convenient foods worldwide. It boasts a broad range of consumer staples, including beverages like Pepsi and Gatorade, and snack brands such as Lay’s and Quaker Oats. These products are daily essentials, ensuring consistent demand regardless of economic fluctuations. Operating in over 200 countries, the extensive international footprint mitigates risks associated with regional economic downturns. This global diversification helps maintain steady revenue streams. In the second quarter of 2024, PepsiCo reported a net income increase of 12% to $3 billion, or an adjusted $2.28 per share, surpassing analyst expectations. The firm also has a strong history of returning value to shareholders through dividends.
10. The Procter & Gamble Company (NYSE:PG)
Number of Hedge Fund Holders: 68
The Procter & Gamble Company (NYSE:PG) provides branded consumer packaged goods. The firm has an extensive range of consumer staples, including well-known brands such as Tide, Gillette, and Pampers. These everyday essentials maintain consistent demand, even during economic downturns. It also has a diversified geographic footprint that reduces reliance on any single market. In the fourth quarter of fiscal year 2024, P&G reported net sales of $20.5 billion, maintaining steady performance compared to the previous year. The company experienced varied results across its segments, with Health Care sales increasing by 3%, while Beauty and Baby, Feminine & Family Care saw slight declines. P&G has a long-standing commitment to returning value to shareholders through dividends. The company has increased its dividend payout for 66 consecutive years.
9. The Coca-Cola Company (NYSE:KO)
Number of Hedge Fund Holders: 69
The Coca-Cola Company (NYSE:KO) is a beverage company. In the third quarter of 2024, Coca-Cola reported a 9% increase in organic revenues, driven by a 10% growth in price/mix, despite a 1% decline in net revenues to $11.9 billion. The company’s comparable operating margin improved to 30.7% from 29.7% in the prior year, indicating effective cost management and operational efficiency. Coca-Cola achieved a 5% increase in comparable EPS, reaching $0.77 in Q3 2024, reflecting its ability to enhance shareholder value. The company also gained value share in the total nonalcoholic ready-to-drink beverages segment, underscoring its strong brand presence and consumer demand. The firm has an impressive dividend history with 62 years of consistent growth and uninterrupted payouts.
8. Costco Wholesale Corporation (NASDAQ:COST)
Number of Hedge Fund Holders: 75
Costco Wholesale Corporation (NASDAQ:COST) engages in the operation of membership warehouses. In the fiscal year ending September 1, 2024, Costco reported net sales of $249.6 billion, marking a 5% increase from the previous year. Comparable sales growth was strong across all regions, with the US at 5.3%, Canada at 5.5%, and Other International markets at 5.7%. E-commerce sales also saw a significant rise of 18.9% during the fourth quarter. Net income was $2.354 billion, or $5.29 per diluted share, compared to $2.160 billion, or $4.86 per diluted share, in the fourth quarter of the prior year. The firm has a history of providing stable and growing dividends to its shareholders. In November 2024, the company declared a quarterly dividend of $1.16 per share, resulting in an annual dividend of $4.64 per share and a yield of approximately 0.49%. Notably, Costco has increased its dividend for 20 consecutive years, with a dividend growth rate of 13.64%.
7. Philip Morris International Inc. (NYSE:PM)
Number of Hedge Fund Holders: 75
Philip Morris International Inc. (NYSE:PM) is a tobacco company. In the first nine months of 2024, the firm reported that approximately 38% of its net revenues were derived from smoke-free products, reflecting a strategic shift towards less harmful alternatives. This transition is further evidenced by the fact that, at the beginning of 2024, 38% of PMI’s global net profits came from smoke-free alternatives, surpassing traditional cigarette sales for the first time. The company has consistently increased its annual dividend every year since becoming a public company in 2008, representing a total increase of 193.5% and a compound annual growth rate of 7%. In December 2024, the Board of Directors declared a regular quarterly dividend of $1.35 per common share.
6. Johnson & Johnson (NYSE:JNJ)
Number of Hedge Fund Holders: 81
Johnson & Johnson (NYSE:JNJ) researches and develops, manufactures, and sells various products in the healthcare field. In the fourth quarter of 2024, J&J reported revenues of $22.52 billion, marking a 5.3% increase from the same period in the previous year. This growth was driven by robust sales in the pharmaceutical and medical technology divisions, which saw increases of 4.4% and 6.7%, respectively. For the full year 2024, the company achieved total revenues of $88.82 billion, reflecting a 4.3% rise compared to 2023. The US market contributed $50.3 billion, an 8.3% increase, while international markets accounted for $38.5 billion, a slight decrease of 0.5% due to unfavorable currency impacts. J&J has a remarkable track record of dividend growth, having increased its annual dividend for 62 consecutive years.
5. Walmart Inc. (NYSE:WMT)
Number of Hedge Fund Holders: 88
Walmart Inc. (NYSE:WMT) engages in the operation of retail, wholesale, and other units worldwide. The stellar financial metrics of the firm, combined with consistent dividend growth and essential product offerings, underscore the value of Walmart as a defensive stock, appealing to investors seeking stability and reliable returns. It has a focus on essential consumer goods, ensuring steady demand. The strategic investments made in e-commerce have positioned the company for future profitability in this segment as well. The company’s trailing 12-month Return on Capital Employed (ROCE) stands at 18.97%, significantly higher than the industry average of 10.72%. Additionally, its trailing 12-month Return on Total Capital (ROTC) and Return on Total Assets (ROTA) are 11.70% and 6.11%, respectively.
4. UnitedHealth Group Incorporated (NYSE:UNH)
Number of Hedge Fund Holders: 112
United Group Incorporated (NYSE:UNH) operates as a diversified healthcare company in the United States. The position of the firm in the healthcare industry provides a level of resilience against economic downturns, as healthcare services remain essential regardless of economic conditions. The company’s diversified operations, encompassing insurance services and healthcare provisions, contribute to its stability. Despite recent challenges, including increased medical costs and external events, UnitedHealth Group’s consistent financial performance and commitment to shareholder returns underscore its value as a defensive stock. In the fourth quarter of 2024, UnitedHealth Group reported revenues of $100.8 billion. The adjusted earnings per share (EPS) stood at $6.81.
3. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 158
Apple Inc. (NASDAQ:AAPL) designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories. Apple has a history of returning value to shareholders through dividends and share repurchases. In the latest quarter, the company returned $30 billion to shareholders. The current annual dividend stands at $0.92 per share, yielding approximately 0.39%. Apple’s substantial cash reserves, totaling $68 billion as of June 2024, support its capacity to maintain and potentially increase these returns. Apple’s diversified product portfolio and strong brand loyalty contribute to its resilience during economic downturns. The significant growth in its services segment, which boasts higher margins, enhances revenue stability.
2. Visa Inc. (NYSE:V)
Number of Hedge Fund Holders: 165
Visa Inc. (NYSE:V) is a California-based payments technology firm. Visa has a commendable track record of increasing its dividends for 17 consecutive years. As of January 2025, the company offers an annual dividend of $2.36 per share, yielding approximately 0.73%. The dividend payout ratio stands at 24.25%, indicating a prudent balance between rewarding shareholders and retaining earnings for future growth. In earnings for the fourth quarter of 2024, the company achieved a 10% year-over-year increase in revenue, totaling $9.5 billion, surpassing analysts’ expectations of $9.34 billion. Visa reported an EPS of $2.75 during the time, exceeding the projected $2.66. The net income for the quarter was $5.1 billion, reflecting a 5% rise from the previous year.
1. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 279
Microsoft Corporation (NASDAQ:MSFT) is a Washington-based technology company. In the fiscal year ending June 2024, Microsoft reported revenues of $211.9 billion, a 10% increase from the previous year. The company achieved a net income of $72.7 billion during the time, reflecting a 9% year-over-year growth. Microsoft pays an annual dividend of $3.32 per share, yielding approximately 0.77%. The company has increased its dividend for 20 consecutive years, with an average annual growth rate of 10.22% over the past three years. Among pure-play technology companies, it is only among a handful of tech stocks to achieve this kind of stability and growth over the past three or four decades.
While we acknowledge the potential of Microsoft Corporation (NASDAQ:MSFT) as an investment, our conviction lies in the belief that some stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a stock that is more promising than Microsoft Corporation (NASDAQ:MSFT) but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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