3 Top Defensive Stocks to Own for a Focus on Quality
In today’s volatile and uncertain market, investors increasingly seek stable, reliable, and resilient companies to add to their portfolios. Defensive stocks, which are typically associated with companies that operate in industries that p…
In today’s volatile and uncertain market, investors increasingly seek stable, reliable, and resilient companies to add to their portfolios. Defensive stocks, which are typically associated with companies that operate in industries that provide essential goods and services, can provide a hedge against market downturns while still delivering consistent returns.
While many may seek growth, having a portion of one’s portfolio providing stability can be important. Indeed, in these times, playing it safe may be the best course of action.
Accordingly, let’s dive into three top-notch defensive stocks to buy for those looking to focus on quality. Each of these companies have strong financials, durable competitive advantages and long-term growth potential.
American Water Works
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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.
For numerous investors, McDonald’s has been an essential player in the global fast-food sector and is viewed as a viable long-term investment. With noteworthy growth figures, the company has proven its capacity to thrive as a top-tier brand, expanding internationally and driving sales growth at existing locations.
While there are numerous explanations for why McDonald’s stock performs well in a bullish market, there are three primary factors to consider why this stock is worth owning during periods of turmoil.
First, it is less punishing for investors who make incorrect economic predictions, given the trade-down effect consumers are likely to see in the dining sphere in times of economic hardship. Second, its business and stock benefit from favorable market conditions. Finally, the company boasts robust financials, adding to its attractiveness as a stock option.
MCD’s stock is relatively pricier when compared to its industry peers, with a price-to-earnings ratio of 32 times and a meager dividend yield of 2.3%. With that said, McDonald’s is an ideal option for those who anticipate an upswing but also recognize the possibility of being wrong about its timing. The company’s sound financial footing and stable demand in robust and weak economies make it a perfect safe-haven choice.
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Among the impressive defensive stocks to consider in the biotech space is AbbVie (NYSE:ABBV). This healthcare giant has both a BBB+ rating from S&P Global Ratings as well as a substantial dividend yield of 3.8%. The company has raised its dividend for eleven consecutive years.
Although the patent on AbbVie’s crucial Humira drug has expired, investors remain optimistic about the company’s performance this year following its success in 2022. Moreover, ABBV has increased its quarterly dividend to $1.48 per share from $1.41, resulting in a current yield of slightly below 4%.
To surpass significant market indices, AbbVie’s most crucial objective is to exceed expectations. The corporation’s revenue and earnings are projected to decrease substantially this year, which is already factored into the stock’s price. However, if AbbVie can outperform expectations, even when they are pessimistic, there is a strong possibility that its shares will increase.
AbbVie might experience better performances from other medications in its portfolio. Rinvoq and Skyrizi, Humira’s two successors, have the potential to offer an additional boost. AbbVie predicts the two drugs will generate a combined revenue of $7.5 billion this year.
American Water Works (AWK)
American Water Works (NYSW:AWK), the primary provider of water and wastewater services in the United States, announced its results on Wednesday after the market closed. The company’s Q4 results exceeded expectations, but the company’s stock still declined modestly as investors assess this stock relative to other better-yielding options in the utilities sector.
American Water maintained strong acquisition momentum in the regulated water and wastewater utilities market. In 2022, the company acquired 26 utilities across seven states, resulting in approximately 70,000 new customer connections.
Investors searching for a secure utility stock that pays dividends and offers strong potential for overall capital appreciation may need help to discover a more suitable option than American Water Works. Despite not being among the top-performing water utility stocks in 2022, the company has consistently outperformed its industry peers over an extended period.
Although it is essential to monitor interest rates, the company’s size gives it advantages in terms of scalability and the ability to make acquisitions. As of March 2022, it pays a quarterly dividend of $2.41, which translates to a yield of 1.5%.
American Water Works generated $3.8 billion in revenue in the fiscal year ended Dec. 31. In the most recent quarter, year-over-year sales decreased by 2.1%. Analysts anticipate that adjusted earnings for the current fiscal year will reach $4.80 per share. The company’s current dividend yield is 1.9%.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.
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