7 Defensive Stocks To Add Portfolio Stability in the Fourth Quarter


defensive stocks - 7 Defensive Stocks To Add Portfolio Stability in the Fourth Quarter

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The global market is never entirely free of fear, uncertainty or doubt. And although the worst of the pandemic is arguably over, there is always another catalyst around the corner ready to take the market down. With that in mind, defensive stocks should be a strong contender for your portfolio.

Investing in the stock market is certainly risky. At any given time, individual stocks, or the market as a whole, can lose value. Thus, capital preservation ought to be a central component of how investors think about constructing a portfolio.

Unfortunately, this bull market has favored taking on more and more risk. And as interest rates remain near all-time lows, alternative assets classes such as bonds are simply unattractive. Accordingly, investors seeking any sort of return have come to the stock market.

Of course, with cryptocurrencies taking off, meme stocks outperforming and a range of other highly-speculative assets seeing impressive gains, investors may forget about the defensive stocks sitting there at reasonable valuations. Such a reality makes sense. There’s understandably little appetite for taking a 5% capital gain and 5% dividend yield to the bank each and every year, when some stocks are popping by double-digit percentages in a given day.

However, this mania is unlikely to last. But what will last over the long-term are highly defensive stocks with durable competitive advantages (or moats).

That being said, here are seven of my top picks in this regard for investors valuing capital preservation and a conservative investing approach right now.

  • ConocoPhillips (NYSE:COP)
  • Johnson & Johnson (NYSE:JNJ)
  • Disney (NYSE:DIS)
  • Thermo Fisher (NYSE:TMO)
  • UnitedHealth Group (NYSE:UNH)
  • Procter & Gamble (NYSE:PG)
  • Home Depot (NYSE:HD)

Now, let’s dive in and take a closer look at each one.

Top Defensive Stocks: ConocoPhillipis (COP)

a sign in front of the Conoco Philips office building

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The energy sector is a defensive one that has started to shine this year. Given rising commodities prices, energy stocks such as ConocoPhillips have done very well this year. In fact, shares of COP stock have more than doubled over the past year.

Among its peers, ConocoPhillips has actually been on of the best-performing oil and gas stocks in 2021. This energy company has jumped 85% year-to-date (YTD), supported by a bullish outlook for energy. This is compared to strong, but relatively muted, performance by the company’s peers.

Moreover, the U.S.-based oil and gas company reported some rather strong results this past quarter. And that’s putting it mildly. ConocoPhillips brought in $11.62 billion in revenue during its third quarter. This absolutely blew away last year’s $4.38 billion in revenue for the same period, and topped revenue of $10.21 billion the previous quarter. So, unsurprisingly, the company had a very nice top- and bottom-line beat.

In fact, over the past three quarters, ConocoPhillips has been an earnings beat machine. The company has been able to consistently bring in higher top and bottom line numbers than expected. And for investors bullish on execution, this is a great thing.

Additionally, the company’s 2.4% dividend comes with a relatively low forward payout ratio of 24.9% and fast-growing earnings. Accordingly, this is a company that’s on my watch list right now.

Johnson & Johnson (JNJ)

A red Johnson & Johnson (JNJ) sign hangs inside in Moscow, Russia.

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There are various factors that make healthcare giant Johnson & Johnson a solid defensive stock. Indeed, JNJ stock has proven to be a steady stock this year, trading relatively flat YTD.

Now, why would investors want to consider such a company? After all, given the growth in the market, this is a stock that has clearly outperformed.

Some of the reason for this relative underperformance may be attributed to recent declines among Covid-19 vaccination stocks. However, investors should remember that vaccine sales remain a relatively small percentage of Johnson & Johnson’s overall business. Accordingly, this stock is one that may be worth a look on this dip.

Well, in good times and bad, Johnson & Johnson has continued to bring in strong and growing earnings. This company’s recent results highlighted the strength of this healthcare/consumer essentials play. The company brought in $2.60 in adjusted earnings per share (EPS) this past quarter. This represents year-over-year (YOY) EPS growth of more than 18% — a big boost for long-term investors.

Currently, JNJ stock yields 2.6%, and is poised to continue raising its dividend over time. As a Dividend Aristocrat with nearly 60 years of consecutive dividend increases, investors can bank on it. And that’s something every long-term investor should like.

Top Defensive Stocks: Disney (DIS)

Walt Disney (DIS) logo on mobile phone with Cinderella's castile in background

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One of the more growth-oriented names on this list, Disney remains a top pick of mine. This is for various reasons.

Among the key factors I look at with Disney is this company’s rebound from the pandemic. While most stocks exhibited a V-shaped recovery from March 2020 lows, Disney’s overall business is one that clearly is deserved of this valuation bump. The company’s return to the black in its key theme parks and entertainment sector is downright impressive. After all, certain restrictions are still in place, and there’s room for this business segment to continue to grow.

Additionally, the company’s streaming platform, Disney+, has generated a tremendous amount of growth through the pandemic. The number of paid subscribers in Disney’s digital streaming services segments sits at nearly 116 million. That’s impressive, and I expect this segment to continue to provide positive returns for investors over the long-term. In fact, we’ll find out more when the firm reports its Q4 and full-year earnings after the close on Wednesday.

Accordingly, it’s unsurprising to see Disney post such strong results in recent quarters. The company’s recent results have blown investors out of the water, and I expect this performance to continue into 2022.

Thermo Fisher (TMO)

A Thermo Fisher Scientific (TMO) sign out front of an office in Silicon Valley, California.

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A more industrial name, Thermo Fisher is a company that deals with the production of analytical instruments used in scientific research, pharmaceutical and industrial developments. The company has strategically innovated and leveraged its product portfolio in order to contribute to efforts for countering the pandemic.

Its market capitalization touched near $250 billion recently as it had a busy year supplying equipment needed for COVID-19 testing. The company has posted revenue growth at compounded 12% a year over a period of 10 years. On top of that, the company also managed to grow its annual free cash flow by 18% and its annualized earnings growth by more than 20%.

Furthermore, its Q3 reports suggest that the company has comfortably surpassed analyst estimates. Also, Thermo Fisher raised its revenue guidance for the whole of 2021 to $37.1 billion. And it also boosted the full-year adjusted EPS forecast is also raised to $23.37.

With such a high historical growth rate, decent stock valuation and impressive future prospects, TMO can certainly be viewed as a suitable long-term defensive holding.

Top Defensive Stocks: UnitedHealth Group (UNH)

The UnitedHealth (UNH) headquarters in Minnetonka, Minnesota.

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Another one of the largest U.S.-based healthcare companies, UnitedHealth is another defensive stock to consider. UNH stock has appreciated by a massive 1,100% over the past decade.

This healthcare stock is highly resilient in nature. It has increased its dividend growth on an average of 20% over the last five years and has a forward payout ratio of 26.8%. This implies UNH stock could have more room to devote its earnings for dividend increases over time.

With a Q3 revenue of $72.3 billion and EPS of $4.52, the company performed significantly well in the recent quarter. This has encouraged the company’s management to increase its EPS guidance for 2021. Net EPS is predicted to range between $17.70 and $17.95.

Analysts believe UnitedHealth Group has significant growth prospects. Among the reasons for this is the company’s $8 billion deal to acquire Change Healthcare. Of course, there may be a few roadblocks along the way. But if this deal goes through, this near-term catalysts should provide momentum for UNH stock.

Overall, I think there’s a lot to like about UNH stock, and this company remains on my watch list right now.

Procter & Gamble (PG)

A Procter & Gamble (PG) distribution center in Vandalia.

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Proctor & Gamble is among the most reputable names in the consumer staples sector. This company is the parent of several household item brands such as Pampers, Tide, Old Spice, Gillette, Febreze and many more.

This consumer goods giant is a well-known dividend aristocrat that has been increasing its dividend consistently for 65 years. With high dividend distributions, consistent earnings, solid financials, and a high-margin business, Procter & Gamble is a popular blue-chip stock.

The company’s Q1 of fiscal year 2022 financial reports showed that Proctor & Gamble surpassed its revenue and earnings estimates significantly. The company’s net income came in at $4.11 billion with $1.61 in earnings per share. Net sales also jumped 5% from $19.32 billion to $20.34 billion this past quarter. These results handily beat Wall Street estimates of $19.91 billion. The company’s beauty and healthcare segment saw the most significant rise in the said quarter, contributing to another impressive quarter.

With excellent financials, solid fundamentals, high and growing dividends, and a diversified line of essential products, P&G is indeed an outstanding defensive stock.

Top Defensive Stocks: Home Depot (HD)

a Home Depot store is seen from the outside

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Last but not least, we have Home Depot.  This company is widely-regarded as one of the best defensive stocks, for a number of reasons. Indeed, the U.S.-based home improvement retail company saw little impact from the pandemic. As folks ramped up their remodel efforts, given their home’s dual purpose use as an office, Home Depot’s sales rose. Also, the company’s ability to stay open during the pandemic — due to the company’s products being deemed essential — was a big deal for this stock.

Moreover, looking forward past the pandemic, Home Depot appears to have a solid outlook. The company expects a pickup in construction activity to continue to provide tailwinds into next year. Indeed, my view is that the company’s upcoming quarter could be one of its best in some time.

This past quarter, Home Depot registered some impressive numbers, including revenue growth of 8.1% YOY. That said, the company registered sales growth of 7.1%, 23.4%, 23.2% and 25.1% during its four quarters of 2020. So the outlook is strong for even more growth the rest of 2021. And we’ll find out when Home Depot reports its Q3 results on Nov. 16.

Furthermore, Home Depot currently pays an attractive dividend of about $6.60 per share, and has been consistently increasing its dividend over the past three years. In fact, this is a company with a strong track record of nine years of continuous dividend growth. Thus, its recognition as one of the best defensive stocks lives on.

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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