Consumer Defensive Stocks

We think investors should give wide-moat Anheuser-Busch InBev a look, trading more than 30% below our assessment of intrinsic value. After its dividend cut, we believe the firm is now poised to pay down debt and enhance its financial flexibility. We see growth opportunities for AB InBev in emerging markets, such as Africa and Latin America. Prefer to invest in the consumer staples sector via a ready-made portfolio? Syfe’s Core portfolios hold the XLP ETF as part of their diversified holdings.

They also alleviate fear because they are not as risky as regular stocks, and it usually takes a significant catastrophe to derail their business model. Investors also need to signs that you are not meant to be a programmer be aware that most investment managers have no choice but to own stocks. If they think times are going to be harder than usual, they will migrate toward defensive stocks.

As any experienced investor knows, there’s no single investment type that performs best across all market environments. There will be times when tech, energy, growth, and value stocks each takes the lead, and times when each of these sectors and styles lags. One unknown—for both 2024 and the longer term—may be the impact of the new weight-loss drugs. How many people will take these drugs and what their effect on sales will be is not yet known. Packaged foods and soda companies may be the most at risk, whereas household products companies and retailers may be less exposed.

Stash does not represent in any manner that the circumstances described herein will result in any particular outcome. While the data and analysis Stash uses from third party sources is believed to be reliable, Stash does not guarantee the accuracy of such information. Nothing in this article should be considered as a solicitation or offer, or recommendation, to buy or sell any particular security or investment product or to engage in any investment strategy. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.

  1. The conglomerate has a number of life sciences subsidiaries, including companies that develop and sell tech for developing cell lines, and companies that develop and sell nucleic acid.
  2. These are products that people are unable or unwilling to cut out of their budgets regardless of the economic condition.
  3. Before investing, please carefully consider your willingness to take on risk and your financial ability to afford investment losses when deciding how much individual security exposure to have in your investment portfolio.

When picking mutual funds or ETFs for your portfolio, strive for diversification in your choice of stocks from the sectors and sub-sectors. For instance, healthcare is a defensive sector, but if you invest all of your money in it, your portfolio value will move up and down with price swings in that sector alone; no other sector would act as a hedge against losses in that sector. While defensive sectors remain primarily stable in price throughout the economic cycle, the trade-off is that they offer less drastic growth during market upswings, compared to higher-risk, cyclical industries. These are parts of the economy that often show resiliency during a downturn because consumers continue to spend money on these products and services even when times are tight. Take the health care sector, says Eddie Yoon, portfolio manager of the Fidelity® Select Health Care Portfolio ().

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In contrast, the S&P 500 information technology sector has dropped 13%. Building a defensive investment strategy might help protect you from greater losses during a recession or economic downturn. Investing in defensive stocks is one starting point, but it’s just part of the puzzle; you can further reduce your risk with a diversified portfolio containing a variety of holdings that are not all subject to the same market risk. The healthcare sector includes businesses that provide medical services and insurance, manufacture medical equipment or drugs, and/or facilitate patient healthcare in hospitals, clinics, labs, and nursing homes. Because healthcare is a necessity and medicine and medical equipment are always in demand, this sector offers strong defensive investment opportunities. Another advantage of defensive stocks’ low volatility is predictability.

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It has $46.39 million in assets, while its net expense ratio is 0.29%. For the consumer discretionary sector, State Street Global Advisors (SSGA) offers one of the market’s top options. When an economy is growing, many sectors see stock values increase and this can make equities attractive. The higher values are due to increasing profits and more discretionary consumer income. Village Super Market’s earnings per share for Q1 sits at $0.78, whereas in Q4, they were at 1.05. Most recently, the company reported a dividend yield of 4.0%, which has decreased by 0.48% from last quarter’s yield of 4.48%.

These sectors are considered essential and typically maintain their income streams and overall stability even when the market is volatile. Many investors include defensive stocks in their portfolios to counterbalance potential losses from more volatile securities. Opinions about what percentage of your portfolio you should invest in defensive stocks vary wildly. Ultimately, it’s a personal decision based on your long-term goals and tolerance for risk. Defensive stock funds can reduce risk and losses in the value of your portfolio during economic declines, but these funds can still lose value during a market correction or bear market. For this reason, defensive sector funds are most effective when you use them as one part of a diversified portfolio of mutual funds.

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«People take their prescriptions whether we’re in a recession or not. They go to the hospital whether we’re in a recession or not. So demand is less volatile.» In general, when the economy is strong, consumers earn more and spend more on consumer discretionary products. On the other hand, when an economy is contracting, consumers usually earn less and focus their spending more on products essential to their needs. These are known as consumer staples, also referred to as consumer defensive. Additionally, the consumer staples sector has historically experienced lower price volatility compared to other sectors, which are more correlated to business cycles.

Advantages of Defensive Stocks

He joined FactSet in 2016 and prior to that, worked on the Transition Team at Robert W. Baird & Co., and led marketing for SmartUQ LLC, a start-up quantitative analytics company. Whether you want to invest in consumer staples stocks or ETFs, Syfe enables you to do so easily and affordably. Not every firm will be able to raise their prices (to protect profit margins) without losing too many customers. Companies without strong brand loyalty are susceptible to consumers switching brands, a trend that intensified during the pandemic.

How Do Consumer Staples Relate to Consumer Discretionaries?

Companies that produce or distribute consumer staples, which are goods people tend to buy out of necessity regardless of economic conditions, are generally thought to be defensive. They include food, beverages, hygiene products, tobacco, and certain household items. These companies generate steady cash flow and predictable earnings during strong and weak economies. Their stocks tend to outperform nondefensive or consumer cyclical stocks that sell discretionary products during weak economies while underperforming them in strong economies. When the overall economy isn’t doing well, one sector that usually performs better than average is Consumer Staples or Consumer Defensive.

Douglas Simmons, manager of the Fidelity® Select Utilities Portfolio () says that he sees plenty more potential fuel behind the rally. But if you’re looking to batten down the hatches on your portfolio, read on for a closer look into each of these 3 sectors, and where Fidelity’s portfolio managers have found opportunities. Views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author and not necessarily those of Fidelity Investments or its affiliates.

«There are basically only 3 players of scale in the subsector, and the barriers to entry are very high,» he says. If a consumer wants a cola, they usually only have 2 options to choose from—Coke and Pepsi. An example of a portfolio holding that has illustrated this thesis is UnitedHealth Group (), one of the largest health insurers in the US. With earnings growth for the broad market declining, growth expectations for utilities may look increasingly attractive.


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