- Investors are turning to defensive growth stocks that boast dominant positions in their respective markets.
- Adobe (ADBE): Leading productivity and design solutions for the digital media market with growing enterprise demand.
- Fiserv (FISV): Management anticipates 7% to 9% organic revenue growth and adjusted earnings per share growth of 15% to 17%.
- IBM (IBM): Guided for at least $10 billion of free-cash-flow generation and supports a generous 4.9% dividend yield.
- Intel (INTC): Strong data center and networking markets are expected to offset the downturn in PC demand.
- Intuitive Surgical (ISRG): Commands almost 80% of the global market in robotic-assisted surgeries.
- T-Mobile (TMUS): Reported industry-leading growth in postpaid and broadband customers.
- Vanguard Small-Cap Growth Index Fund ETF Shares (VBK): Offers exposure to a diversified group of small growth companies.
Interest rate hikes and soaring inflation are making investors look for defensive growth stocks. With a series of macroeconomic headwinds threatening the global economy, such share could offer safety as well as market-beating returns.
The risk-off sentiment across all asset classes has adversely affected high-growth stocks in particular, which have seen their stock prices plunge in 2022. For instance, the Nasdaq 100 index has declined 27% so far in 2022. And the Vanguard Growth ETF (NYSEARCA:VUG), the leading ETF among large-cap growth stocks, is down almost 29% year-to-date (YTD).
Analysts are now debating how much longer Wall Street’s downturn will likely continue. Meanwhile, seasoned investors realize that many high-quality growth stocks trade at bargain valuations these days. Therefore, the second part of the year can be a good time to review some of these shares.
With that information, here are seven defensive growth stocks that boast dominant market positions and offer competitive advantages:
|VBK||Vanguard Small-Cap Growth Index Fund ETF Shares||$200.95|
The first defensive growth stock on our list is Adobe (NASDAQ:ADBE), the leading provider of software for creative content creation. Enterprises and individuals rely on products and services for document management, digital marketing as well as advertising.
Adobe released first-quarter results on March 22. Revenue grew 9% year-over-year (YOY) to $4.26 billion. Adjusted earnings came in at $3.37 per diluted share, up from $3.14 in the prior-year quarter. Cash and equivalents ended the period at $2.74 billion.
The cloud software company sells its suite of software products through a recurring subscription model, which Wall Street loves. In Q1, the digital media annualized recurring revenue increased $418 million quarter-over-quarter to $12.57 billion.
Inflation is a big worry for many companies, which may wonder whether their customer numbers will be affected in the near future. Yet, as Adobe’s services tend to be sticky, the client demand is likely to stay stable. In fact, during the second quarter, management anticipates $4.34 billion in revenue, representing mid-teens percentage YOY growth.
Like many other software names, ADBE stock has had a rough year so far and declined close to 30% since January. Shares are trading at 27.2 times forward earnings and 11.3 times sales. The 12-month median price forecast for Adobe stock stands at $570.
Our next defensive growth stock, Fiserv (NASDAQ:FISV), provides banks and other financial institutions the financial technology (fintech) needed to execute many of their daily functions. It works with around 10,000 financial institutions and 6 million merchants.
Fiserv released Q1 results on April 27. Revenue grew 10% YOY to $4.14 billion. Adjusted earnings came in at $1.40 per share, up 20% YOY from $1.17 per share in the prior-year period. Free cash flow (FCF) stood at $603 million. Cash and equivalents ended the period at $2.83 billion.
The fintech provider saw 11% company-wide organic revenue growth in the first quarter. Investors were pleased that Fiserv’s small-business offering, the Clover platform, reported a solid 39% revenue growth. Moreover, the recent Finxact acquisition will provide potential long-term growth in cloud-native banking solutions.
FISV stock has dropped 9.2% YTD. Shares look undervalued at 14.90 times forward earnings and 3.9 times sales. Meanwhile, the 12-month median price forecast for Fiserv stock is at $130.
Tech giant IBM (NYSE:IBM) offers integrated solutions, including data center assembly, software, and IT services. The recent Kyndryl (NYSE:KD) spinoff will likely allow IBM to focus on long-term growth opportunities such as hybrid cloud computing and artificial intelligence (AI).
IBM announced Q1 results on April 19. Revenue grew 8% YOY to $14.2 billion. Adjusted earnings came in at $1.40 per share, compared to $1.12 in the prior-year quarter. Cash and equivalents ended the period at $10.8 billion. FCF stood at $1.2 billion.
Wall Street was pleased that the software segment grew by 15% YOY at constant currency, generating $5.8 billion in revenue. Consulting revenue also grew by 17% YOY and reached $4.8 billion.
IBM stock is about flat so far in 2022. Shares have a modest valuation at 13.5 times forward earnings and just 2.1 times sales. The 12-month median price forecast for IBM stock stands at $145.
Next on our list of defensive growth stocks is Intel (NASDAQ:INTC), one of the largest semiconductor manufacturers worldwide with a market capitalization (cap) of $176 billion. The chipmaker is in the process of investing $20 billion in two leading-edge chip factories in Ohio.
Intel issued Q1 results on April 28. Revenue declined 7% YOY to $18.4 billion. Adjusted earnings saw a sharper drop, falling 35% YOY to 87 cents per share. Cash and equivalents ended the period at $6.22 billion.
Despite the decline in total revenue, first-quarter revenue from the data center and artificial intelligence segment soared 22% YOY. The chipmaker highlighted that strong data center and networking markets would more than compensate for the weakness in PC demand. Therefore, management maintained its $76 billion revenue estimate for 2022.
Nonetheless, INTC stock has lost 17.5% YTD. As a result, shares are trading at 11.95 times forward earnings and 2.26 times sales. At present, the 12-month median price forecast for Intel stock is at $50.
Intuitive Surgical (ISRG)
Next we look at Intuitive Surgical (NASDAQ:ISRG), the market leader in robotic-assisted surgeries. The company commands almost 80% of the global market. Its famed “da Vinci” surgical systems offer surgeons a suite of robotic capabilities to perform complex procedures.
The medical robotics company released Q1 results on April 21. Revenue increased 15% YOY to $1.49 billion. However, adjusted earnings declined slightly to $1.13 per diluted share, down from $1.17 a year ago. Cash and equivalents ended the period at $8.40 billion.
Procedures worldwide using da Vinci systems increased 19% YOY. Understandably, hospitals make significant investments when purchasing such robotic surgical systems. But, once hospitals buy them, they become long-term customers for updates, parts, or services.
Put another way, a hospital would face high switching costs to move to a competitor. Therefore, Wall Street is not expecting a decline in the number of clients that Intuitive has. In addition, the company will likely benefit from global growth in such surgical operations.
Despite the strong fundamental metrics, so far this year, ISRG stock has declined over 40%. Shares are trading at 44.05 times forward earnings and 13.7 times sales. At present, the 12-month median price forecast for ISRG stock stands at $325.
My final single stock on this list of defensive growth stocks is T-Mobile (NASDAQ:TMUS), which offers communication services via its flagship brands, T-Mobile, Metro by T-Mobile, and Sprint. As a result of the Sprint acquisition, its total customer count increased to 109.5 million.
The wireless service provider announced Q1 results on April 27. Revenue grew 7% YOY to $15.1 billion. However, diluted earnings per share declined 23% YOY to 57 cents, down from 74 cents a year ago. FCF grew 26% YOY to $1.6 billion.
T-Mobile boasts a clear network lead in 5G coverage, with significant growth in postpaid and broadband customers. It grew total accounts by 348,000, postpaid customers by 1.32 million, and postpaid phone net adds by 589,000 YOY.
TMUS stock has appreciated nearly 7.5% YTD. Shares are trading at 49.26 forward earnings and 1.93 times sales. Finally, the 12-month median price forecast for T-Mobile stock is at $169. Even in economic downturns, individuals and businesses keep their phone and internet accounts active. Therefore, a business like T-Mobile is not likely to lose customers even during a potential recession stateside.
Vanguard Small-Cap Growth Index Fund ETF Shares (VBK)
52-Week Range: $193.17 – $306.78
Expense Ratio: 0.07% per year
Our final discussion centers around a low-cost exchange-traded fund (ETF), namely the Vanguard Small-Cap Growth Index Fund ETF Shares (NYSEARCA:VBK). The fund started trading in January 2004. Over the years, it has been a popular choice for growth investors looking for exposure to a diversified group of small growth companies. It also would help fill out a portfolio full of individual defensive growth stocks like we’ve discussed so far.
VBK tracks the CRSP US Small Cap Growth Index and it currently has 751 holdings. The top 10 names account for around 6.7% of its net assets of $28.7 billion. Among the leading names on the roster are the advanced materials and process solutions provider Entegris (NASDAQ:ENTG); technology instruments manufacturer Bio-Techne (NASDAQ:TECH); global media and entertainment company Liberty Media (NASDAQ:LSXMA); and real estate investment trusts (REITs) Equity LifeStyle Properties (NYSE:ELS) and Rexford Industrial Realty (NYSE:REXR).
In terms of sectoral allocation, technology accounts for the largest slice with 21.40%, followed by health care with 19.10%, industrials with 17.70%, and consumer discretionary with 15.60%.
This popular ETF hit a record high in early November 2021. But, since the start of the year, VBK has dropped 26% and now it is changing hands around a 52-week low. Buy-and-hold readers could find value around these levels.
On the date of publication, Tezcan Gecgil 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.