Markets are starting the new year off with plenty of volatility. Through the first two weeks of trading, technology stocks are off to their worst start since 2016. The fast spreading Omicron variant of Covid-19 and the likelihood that the U.S. Federal Reserve will raise interest rates multiple times this year has investors spooked and rushing out of riskier assets and into safer defensive stocks.
In such a volatile environment, it can be difficult for investors to know where to safely put their capital. Many stocks that were steady gainers over the last year are suddenly down more than 30%, causing high levels of anxiety.
Fortunately, we have the following seven defensive stocks to put forward as great places for investors to hide from what appears to be a slow and steady stock market crash. These are reliable blue-chip stocks that have a track record of providing consistent gains no matter what happens with the broader market.
- Berkshire Hathaway (NYSE:BRK.A, BRK.B)
- Coca-Cola (NYSE:KO)
- Walmart (NYSE:WMT)
- Bank of America (NYSE:BAC)
- McDonald’s (NYSE:MCD)
- Home Depot (NYSE:HD)
- Apple (NASDAQ:AAPL)
Defensive Stocks to Buy: Berkshire Hathaway (BRK.B)
In Warren Buffett we trust. This is especially true during times of volatility and market downturns, as evidenced by the current rally taking place in shares of Buffett’s holding company, Berkshire Hathaway. It’s risen 7% to start the new year, as the benchmark S&P 500 index has pulled back 4%.
As usual, Buffett hasn’t done anything but hold onto the stocks in Berkshire Hathaway’s portfolio, which continue to be largely made up of tried and true blue-chip names. And, as is typical, BRK.B stock continues to outperform the broader market, having risen 37% over the last 12-months compared to a gain of 21% for the S&P 500.
Investors seem to appreciate the buy-and-hold investing philosophy of the 91-year-old Buffett, which, time and again, has proven to be the right strategy when it comes to market cycles. As a reminder of that lesson, it was recently pointed out that Buffett’s Berkshire Hathaway stock had matched the performance of celebrity stock picker Cathie Wood’s flagship Ark Innovation (NYSEARCA:ARKK) fund. Since the start of the pandemic, both BRK.B and ARKK are each up more than 50%. However, Ark Innovation has come down more than 30% over the past six months while Berkshire Hathaway has gained 15% over the same time span.
Coca-Cola (KO)
Speaking of Warren Buffett, let’s take a look now at one of the biggest holdings in his portfolio, beverage giant Coca-Cola. Buffett has held 400 million shares of the Atlanta, Georgia-based company for 30 years now and has never sold a single share. And for good reason.
KO stock continues to be a safe and reliable bet, and it pays a healthy dividend that the company has increased, rain or shine, for 59 consecutive years, and now has a dividend yield of 2.76%, which is decent compared to most companies. Over the past year, Coca-Cola stock has advanced 25% to now trade at $60.91 a share.
While not flashy or exciting, Coca-Cola stock is reliable, having delivered a 47% return to investors over the past five years. KO stock was hit hard by the pandemic as its sales at venues ranging from movie theaters to sporting events and concerts largely dried up. However, the company is now recovering and back on track.
Through nine months (three quarters) of 2021, Coca-Cola’s global sales grew by 20% from the same period of 2020. More impressive, the company’s operating profit grew by 30%. Analysts forecast more growth ahead as the pandemic retreats and economies around the world reopen for good.
Defensive Stocks to Buy: Walmart (WMT)
In terms of defensive stocks or blue-chip stocks, you don’t get much more blue-chip than Walmart. The world’s biggest retailer performs well in good economic times and bad. And consumers seem to have relied on Walmart for essential items ranging from groceries to toilet paper more than ever during the pandemic.
While WMT stock hasn’t set the world on fire over the past year, it also hasn’t fallen like a lot of other high-flying securities. In the last 12-months, Walmart stock holds at about the same level a year ago at $144 a share. Again, no real movement up or down. However, many analysts say that the retailer’s shares are due for a rally and have a median price target on the stock of $170, which would be 18% higher than the current share price.
Analysts see online sales and Walmart’s aggressive expansion into e-commerce as a likely catalyst for the company’s share price over the coming year. Many investors were surprised recently when it was revealed that Walmart is exploring developing its own cryptocurrency, as well as non-fungible tokens (NFTs).
All the diversification looks to be a strategy that is paying off though as Walmart has forecast a 6% gain in comparable sales for fiscal 2022. This prompted them to raise forward guidance, taking its earnings per share (EPS) forecast to $6.40 a share, up from prior guidance of $6.20.
Bank of America (BAC)
With interest rates on the rise, bank stocks look like a good bet for 2022. But truth is, bank stocks are usually a reliable investment no matter what is going on with the economy or broader market. And among financial securities, Bank of America is about as reliable as they come in terms of investor returns.
In the last 12-months, BAC stock has gained 40%, bringing its five year advance to 107%. At its current price of $46.89, Bank of America is still a stock most investors can afford to add to a portfolio. Analysts see further upside ahead. Among 24 analysts who cover the stock, the median price target is currently $51.75, which would be 10% higher than where the shares currently sit.
Bank of America is well-positioned to capitalize on the expected interest rate increases this year. The lender, which is the second largest in the U.S. by assets, has estimated that a 100-basis-point rise in the interest rate yield curve will provide it with $7.2 billion in additional net interest income annually.
Bank of America is also benefitting from consumers who are in a better financial position coming out of the pandemic. The bank says that its average checking account balance is 40% higher today than it was in 2019 before Covid-19. Its digital sales also continue to grow, having risen 33% higher than where they were pre-pandemic. It all paints a rosy picture for BAC shareholders.
Defensive Stocks to Buy: McDonald’s (MCD)
Fast food behemoth McDonald’s is another stock that seems impervious to economic cycles. People tend to treat themselves to a Big Mac when they’re feeling happy or sad. And that helps to make MCD stock a reliable investment that produces consistent returns.
Since January 2021, McDonald’s share price has increased 22%. Over the last five years, the stock has gained 111% to now trade at $257.55. This kind of performance makes the burger chain a favorite pick among value investors and Wall Street analysts alike. Of the 32 analysts who cover McDonald’s stock, the median price target is currently $280.95, which would be a further gain of 9%.
Perhaps owing to its steady performance, MCD stock has landed on many analysts lists of top investing ideas for 2022. The current volatility only seems to make McDonald’s a more attractive option, especially with its current dividend yield of 2.14%.
The company has used the pandemic to expand its app used for online orders and its drive thru windows have never closed. As a result, the global chain’s worldwide sales increased 13% in the third quarter from a year earlier, with U.S. sales growing an annualized 9.6% in Q3. Annual sales now top more than $30 billion and counting.
Home Depot (HD)
Another retail stock that is strong in good times and bad is Home Depot. Low-tech and simple in its approach, Home Depot attracts do-it-yourself homeowners and professional contractors in equal measure. And that has enabled Home Depot to keep its same store sales buoyant throughout the pandemic.
HD stock is up 32% over the past year to $364.20 a share. In the past five years, Home Depot stock has increased 169%, providing exceptional returns to shareholders. Coming out of the pandemic, analysts expect Home Depot to continue to be a safe bet. The median price target on the stock is now $427.50, 17% higher than the current price.
Home Deport continues to produce strong results. In the third quarter of last year, Home Depot’s revenue increased by 15.6% from the same time a year ago, outpacing the average revenue growth of 7% over the last decade. Home Depot’s operating income rose by 28.3% in the third quarter of 2021 from a year earlier.
Sales remain strong as consumers continue to spend to upgrade and improve their houses, either to live and work in, or to increase the value ahead of an eventual sale. And in addition to its strong share price appreciation, Home Depot stock also pays a decent dividend yield of 1.77%.
Defensive Stocks to Buy: Apple (AAPL)
If you’re determined to buy a tech stock in the current environment, than Apple (AAPL) is about as safe a bet as an investor can make. The iPhone maker recently became the first company in history to attain a $3 trillion market capitalization. That’s quite a feat considering it’s been less than two years since it first reached a $2 trillion market cap. The $3 trillion valuation indicates just how widely held and influential Apple has become as the world’s leading consumer electronics company. And in addition to its smartphones, tablets and wearable tech, Apple is increasingly expanding into new ventures that include streaming and online payments.
Apple also made headlines recently when it was reported that the Cupertino, California-based company is interested in buying the broadcast rights to some Major League Baseball games as it looks to make foray into live sports.
Apple continues to be a formidable company that is pushing boundaries in several different segments. The diversity and dominance continues to reward shareholders. In the past year, AAPL stock has moved 33% higher to its current price of $169.07, bringing its five year gain to 464%. Many analysts have named Apple their number one stock pick for 2022, calling the company a secure choice among volatile technology securities.
On the date of publication, Joel Baglole did not hold (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.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
