Defensive Industries (2024)

FAQs

Defensive Industries? ›

The defensive sector includes companies that tend to be stable regardless of market performance. Stocks in the defensive sector include companies in household products, food producers, pharmaceuticals, and utilities.

Companies in the utility industry, for example, are defensive because consumer demand does not decline as much during downturns. Consumers need electricity, water, heating, and air conditioning, whether the economy is in a recession or not. The other primary defensive industries are consumer staples and healthcare.

These industries provide secured jobs due to continuous profits by the companies. Employees working in these industries are more satisfied with their jobs. These industries attract more investors due to their continuous growth.

What are Defensive Industries? Defensive industries comprise businesses that are relatively stable or relatively immune to economic fluctuations, i.e., economic expansions and recessions.

Consumer defensive companies are engaged in the manufacturing of food, beverages, household/personal products, packaging, or tobacco. Procter & Gamble PG, PepsiCo PEP, and Costco Wholesale COST are among the largest companies in the consumer defensive index.

Cyclical stocks are generally the opposite of defensive stocks. Cyclical stocks include discretionary companies, such as Starbucks or Nike, while defensive stocks are staples, such as Campbell Soup.

Defensive stocks are those that hold up well during periods of economic downturns. The healthcare sector is considered one of the most reliable defensive industries because these companies benefit from growing consumer demand regardless of the overall economy.

Defensive investments focus on generating regular income, as opposed to growing in value over time. The two most common types of defensive investments are cash and fixed interest. Cash investments include: High interest savings accounts.

Defensive stocks typically include companies in sectors such as utilities, consumer staples, healthcare, and telecommunications. These sectors are known for providing products and services that are essential to consumers, regardless of the economic climate.

What are the most defensive stock sectors? ›

What stock sectors are considered defensive? Utilities, consumer staples, and healthcare represent the main defensive sectors. These sectors are considered essential and typically maintain their income streams and overall stability even when the market is volatile.

As far as defensive stocks are concerned, McDonald's (NYSE:MCD) is a well-loved classic. The company has historically provided a lengthy track record of steady returns, making it a favorite among investors. Its widespread global presence also reduces its vulnerability to fluctuations in the U.S. economy.

Are banks cyclical stocks? Consumer banks (those that lend money to individuals, through loans, mortgages and credit cards) generally tend to be classified as cyclical stocks, as the demand for their services increases during periods of increased economic activity.

In general, defense stocks (companies that produce weapons and armaments) tend to fare the best during a wartime environment. Energy companies may also see a boost in conflicts that result in higher oil and commodity prices.

Home Depot stock (HD) trades at 19 times versus an average of 21 times. Sure, sales of home-improvement products could decline as households spend less, but the sector also has defensive qualities.

A defensive stock is a stock that provides consistent dividends and stable earnings regardless of the state of the overall stock market. Well-established companies, such as Procter & Gamble, Johnson & Johnson, Philip Morris International, and Coca-Cola, are considered defensive stocks.

Minimized Risk

However, these types of stocks have comparatively less risk than aggressive stocks. They're less likely to drop in value when there are events that trigger an economic downturn thanks to their steady nature and low volatility. In a recession, defensive stocks can protect you from further losses.

For example, some investors might argue that certain giants in the tech sector — like Amazon and Alphabet (Google's parent company) — are prosperous, life- and industry-dominant, and adaptable enough to be considered defensive stocks.

Is Coca Cola a cyclical stock? ›

Companies with non-cyclical stocks

Colgate. Tesco. Coca-Cola Company. Costco.

For a long time, and perhaps even today, Apple has been considered a highly cyclical business that ebbs and flows with the broader economic cycle.

High-quality names such as Veeva, Medtronic, Pfizer, and Kellogg are trading at discounted prices. The past year was a rough one for the stock market, but defensive stocks still made gains as a group.

Defensive stocks offer higher dividend yields. You may earn consistent returns by investing in defensive stocks, as some of them regularly pay dividends. Some defensive stocks that have paid higher dividend yields in the past are ITC Limited, ONGC, Oil India, GAIL, Coal India, etc.

Biotech, like other healthcare industries, is considered a "defensive" sector that tends to hold up relatively well during recessions.

High-quality bonds and fixed-indexed annuities are often considered the safest investments with the highest returns. However, there are many different types of bond funds and annuities, each with risks and rewards. For example, government bonds are generally more stable than corporate bonds based on past performance.

Defensive stock refers to the shares of a company that show very little volatility irrespective of the movement of the market. In other words, they remain stable regardless of the economic state. These stocks do not get affected by economic cycles; therefore, they are also referred to as non-cyclical stocks.

The Cyclical super sector has four sectors: Basic Materials, Consumer Cyclical, Financial Services, and Real Estate. The Defensive super sector has three sectors: Consumer Defensive, Healthcare, and Utilities. The Sensitive super sector also has four sectors: Communication Services, Energy, Industrials, and Technology.

What are the most defensive ETFs? ›

For example, when Coca-Cola altered the taste of their drink and produced the sweeter-tasting New co*ke to match Pepsi, their defense strategy backfired as it undermined its brand and upset its core customer base.

Some examples of defensive strategies include: A pricing war, in which a company commits to matching or beating a competitor on price. Adding more features to keep ahead of a competitor. Offering better service or warranties that speak to having better products.

What are defensive assets? Defensive assets provide long-term stable returns with lower volatility. Examples of defensive assets are fixed interest investment options such as debentures, bonds and bank bills and cash investment options which include bank bills and bank deposits.