As we kick off a new year, investing in defensive stocks certainly appears to be in focus for many investors. Following a brutal 2022, many aggressive investors were taught a lesson by Mr. Market– namely, what happens when a portfolio lacks diversification and low-beta assets.
In risk-on momentum-driven bull market rallies, growth stocks outperform to an incredible degree. However, when valuations start to matter and money isn’t free anymore, defensive stocks outperform.
Defensive stocks are typically categorized as companies in mature industries with predictable cash flows that are less sensitive to economic cycles. These companies produce goods and services that consumers need, regardless of economic conditions. Generally, such defensive stocks pay steady dividends and provide investors with capital appreciation over time.
This article will discuss three defensive stocks you should consider if you think the market is headed lower. We’ll look at their current prices and dividend yields, their performance against their peers and any associated risks.
|JNJ||Johnson & Johnson||$164.28|
Restaurant Brands (QSR)
For those seeking defensive stocks with the potential for high returns, Restaurant Brands (NYSE:QSR) is a company I’d certainly put in this bucket. The parent company of Burger King, Tim Horton’s, Popeye’s Louisiana Kitchen and recently-acquired Firehouse Subs, Restaurant Brands holds some of the highest-quality brands in the fast food space.
Based on current information, QSR stock is in an uptrend. Notably, increased popularity among food services sector companies has improved the company’s outlook among technical types.
However, for fundamental investors, there’s a lot to like about QSR stock. This is a company that trades at only 21-times earnings, much lower than its longer-term average. Additionally, it’s a stock with a dividend yield of 3.2%, also much better than its large-cap counterparts (and we’ll get to one in a minute.)
Indeed, QSR stock’s position as a fast food giant provides a robust business model, which can actually perform better in times of stress. For those looking to take advantage of a trade-down in dining out, this is among the top defensive stocks to consider right now.
Johnson & Johnson (JNJ)
As far as defensive stocks are concerned, Johnson & Johnson (NYSE:JNJ) may be the first name many investors think of. This leading multinational pharmaceutical and consumer goods company holds a strong market position due to its portfolio of top global brands.
This company’s solid market position has resulted in robust company fundamentals. It is not surprising to long-term investors to see JNJ announce a $5 billion stock repurchase program and regular increases in its dividend payout.
The S&P 500 started 2023 well after a 19% drop in the previous year. However, the opposite can be said for Johnson & Johnson, whose shares increased by 3% in 2022 but have declined so far in 2023.
According to 11 Wall Street analysts covering JNJ stock, this stock has a consensus buy rating. Out of 11 analysts, there are four buys, seven holds and zero sell ratings on this stock.
Another fast food giant to grace this list, McDonald’s (NYSE:MCD) is the better-known of these two quick-service restaurant giants. McDonald’s has been a critical part of the worldwide fast-food industry and is considered a long-term investment by many investors. The company boasts impressive growth statistics and has demonstrated its ability to grow as a world-class brand through international expansion and increased sales at established locations.
While MCD stock has been increasing over the past year, this stock is also relatively expensive compared to its peers. Trading at 34 times earnings with a dividend yield of only 2.3%, Restaurant Brands and other players look more attractive from a fundamentals standpoint.
That said, it’s McDonald’s size, historical growth and market-leading position that entices investors to hold onto this name over other options in the space. Most analysts expect it to continue paying dividends and reward shareholders with a steady income stream. I agree.
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.