The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation. This page shows information about the 17 largest consumer defensive stocks including Keurig Dr Pepper, Duckhorn Portfolio, BRC, and MamaMancini's. In this sub-section of the consumer defensive sector, you’ll find companies like GNC and the parent company of Walgreens. On the flip side, the generally slow growth of defensive stocks often leads to smaller gains during a bull market. When other stocks are soaring, defensive stocks are more likely to perform below the market.
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. For this analysis, I used FactSet’s economic sector classifications for the Russell 1000 with the sectors categorized as shown in the table below. Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data. In many cases, their defensive nature prevents these firms from expanding rapidly. In the utility industry, they are often bound by more regulations than other businesses.
Value Stocks To Watch In The Consumer Defensive Sector
When it does, Social Security will have to be funded solely by payroll taxes, which currently cover about 77% of benefits. A COLA of 3.2% would raise the forex com overview average monthly retiree benefit by about $59. That’s a huge drop from this year’s 8.7% COLA, which pushed the average monthly check up by about $146.
- The 97 rating InvestorsObserver gives to LifeMD Inc (LFMD) stock puts it near the top of the Consumer Defensive sector.
- As a result, many companies were able to raise prices without losing customers.
- Then, set up the portion of your portfolio that each asset class should represent so that your choice of stock will not be a disproportionate amount of the overall scheme.
- We see cyclical outperformance from the sectors you might expect—Retail Trade, Technology Services, and Electronic Technology—while not adding much in relative volatility.
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The answer is quite simply that fear and greed can often drive the markets. Defensive stocks accommodate greed by offering a higher dividend yield than can be made in low-interest-rate environments. 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 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. Morningstar uses the same 11 sectors listed by the GICS but also groups sectors together into broader categories based on how sensitive they are to changes in the economic cycle.
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. 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.
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To put additional perspective surrounding the outperformance of cyclical stocks, the Russell 1000’s total return for 2020 was 20.97%. Cyclical stocks returned 24.14% compared to defensive stocks with a 12.96% total return. However, looking at cumulative returns, cyclical stocks rebounded quickly and ran away the rest of the year. We did see another dip in October when the second wave of coronavirus cases hit but that was also present in defensive names.
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 best ecommerce stock effective when you use them as one part of a diversified portfolio of mutual funds. A market correction occurs when the market declines between 10% and 20%. A bear market features declines of 20% or more and may come with a recession.
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You can purchase defensive sector mutual funds or ETFs through a brokerage or investment firm. Before you bring these funds into your portfolio, figure out your asset allocation, or how your money will fall into different asset classes like stocks and bonds. Then, set up the portion of your portfolio that each asset class should represent so that your choice of stock will not be a disproportionate amount of the overall scheme. Defensive companies may lag behind other firms during periods of economic expansion due to the stability of demand for their products and services. The surge in demand for discretionary goods during economic booms can sometimes detract from the profits of defensive companies. Finally, consumer staples companies that make private-label products may hold up well, as their lower price points attract consumers.
At this time of writing, the broad-based S&P 500 index has slipped nearly 7% in the year to date, but the S&P 500 consumer staples sector is only down 4% for the same period. Historically, investors have defined cyclical stocks as those that perform well when the economy does well and defensive stocks as those that can weather the storm regardless of market conditions. For instance, biotechnology is an attractive sub-sector of the health sector because of its movement; this is a field with constant innovation.
Meanwhile, median asking rent prices notched $2,052 last month, just $2 away from the all-time record. Bridgford Foods has reported Q2 earnings per share at $0.02, which has decreased by 80.0% compared to Q1, which was 0.1. Grove Collaborative Hldgs's earnings per share for Q2 sits at $-0.32, whereas in Q1, they were at -0.4. This quarter, S&W Seed experienced a decrease in earnings per share, which was $-0.07 in Q3 and is now $-0.13. Cal-Maine Foods saw a decrease in earnings per share from 6.62 in Q3 to $2.27 now.
The official 2024 cost-of-living adjustment is expected to be announced on Oct. 12, when the September inflation numbers come out. Unless the U.S. government’s September 2023 inflation report drops some kind of unforeseen surprise, you can expect the 2024 Social Security cost-of-living adjustment (COLA) to be somewhere in the neighborhood of 3.2%. That estimate is based on the latest Consumer Price Index readings from the Department of Labor.
Defensive stocks as a group have a higher Sharpe ratio than the stock market as a whole. That is a strong argument that defensive stocks are objectively better investments than other stocks. Warren Buffett also became one of the greatest investors of all-time in part by focusing on defensive stocks. 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.
Understanding Defensive Stocks
Due to such fact, defensive industries are able to survive the worst economic downturns. Another advantage of defensive stocks’ low volatility is predictability. The return on defensive stocks is usually slow and steady, as are dividends if the company pays them, which can make it easier to predict how your investments will grow over time. That might be appealing if you’re working toward a specific financial goal or planning for retirement. This is not a solicitation to offer investment advice or services in any state where to do so would be unlawful.
COLA Forecast: New Info About How Much Social Security Benefits Could Increase Next Year
Utility stocks include companies that provide or deliver these services. They are defensive because consumers still need them during an economic decline. This fact makes the prices of defensive utility stock funds less sensitive to market fluctuations. Vanguard Utilities ETF (VPU) is an example of this kind of defensive sector fund. Consumer staples, also known as "consumer non-cyclical stocks," tend to maintain more price stability in a down market than cyclical stocks. During an economic decline, consumers still need staples, such as cereal and milk, and they may even increase their use of so-called "sin stock" products, such as cigarettes and alcohol.
As the name implies, they can act as a kind of protective shield that helps investors endure market downturns. In difficult times or if things are getting shaky, why would anyone even want to own a stock? Why not just go for the safety of a Treasury bill, which essentially has a risk-free rate of return?
Similar to utilities, at least some of the health care sector's outperformance this year can be attributed to valuations, says Yoon. "The sector's valuation, relative to its long-term average, came into the year very attractive," he says. A value stock traditionally has a lower price when compared to stock prices of companies in the same industry. lot size calculator This indicates that the company may be undervalued, as investors are not expressing as much interest in such companies. The most commonly used way to check for value is with the price-to-earnings multiple, or P/E. Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer.