Although a much-debated topic, investors should at least consider shifting toward defensive stocks to buy ahead of a potential downcycle. Notably, Morgan Stanley analysts warned about U.S. recession risks prior to 2023. Naturally, these fears only accelerated due to the recent bank failures.
If that wasn’t enough, the Federal Reserve has a bear of a time containing historically high inflation. Unfortunately, the alliance between the Organization of the Petroleum Exporting Countries (OPEC) and non-member oil-producing nations — known as OPEC+ — imposed a surprise production cut, leading to higher crude prices. Therefore, it’s only sensible to consider the best defensive stocks.
Of course, one could always choose to be out of the market altogether. However, for those that want to stay, these defensive stocks to buy may offer significant protection because of their relevance.
|BJ||BJ’s Wholesale Club||$74.50|
Five Below (FIVE)
An American chain of specialty discount stores Five Below (NASDAQ:FIVE) ranks among the defensive stocks to buy due to its ability to meet consumers’ needs, particularly at an increasingly desperate time. What makes Five Below distinct from other discount retailers centers on pricing diversity. Here, we’re not talking about junk products for a buck. Rather, customers can find eclectic items up to $25.
Financially, Five Below facilitates confidence among investors seeking the best defensive stocks. First, the retailer carries decent stability in the balance sheet. Its Altman Z-Score pings at 5.41, indicating fiscal resilience and low bankruptcy risk.
Operationally, Five Below features a three-year revenue growth rate of 18.8%, outpacing 81.47% of companies listed in the cyclical retail industry. On the bottom line, its net margin comes out to 8.5%, above nearly 82% of its peers. Finally, Wall Street analysts peg FIVE as a consensus strong buy. Their average price target lands at $224.67, implying 9% upside potential.
A relatively easy idea among defensive stocks to buy, Mondelez (NASDAQ:MDLZ) is a multinational confectionary, food and beverage, and snack company. Fundamentally, stressed-out consumers may look for cheap pick-me-ups during a recession. For that, Mondelez’s many tempting brands could fit the bill. Since the start of this year, MDLZ gained over 5% of its equity value.
Financially, the company presents a mix of differing characteristics. Right off the bat, Mondelez could use some work with its balance sheet. For example, its cash-to-debt ratio ranks much lower than other safe stocks listed in the packaged goods sector. On the other hand, its operational stats impress. Notably, Mondelez’s three-year revenue growth rate pings at 8.6%, above 61.69% of its peers. On the bottom line, its net margin touches down at 8.63%, outpacing almost 76% of the competition.
Lastly, covering analysts peg MDLZ as a consensus strong buy. Their average price target comes out to $76.36, implying over 9% upside potential.
Sempra Energy (SRE)
A public utility holding company based in San Diego, California, Sempra Energy (NYSE:SRE) arguably represents a go-to among the top defensive stocks to buy. Fundamentally, Sempra – like other public utilities – benefits from a natural monopoly. Basically, with such a steep barrier to entry, would-be competitors don’t even try. As well, Sempra symbolizes the “tax” residents must pay to live in sunny California.
Despite what you hear on partisan programming, people love California because frankly, you’re not going to find Golden State weather in other parts of the country. Therefore, I’m not concerned about Sempra’s less-than-robust balance sheet. The net demand for life in California – especially SoCal – more than makes up for any shortfalls. Also, where Sempra’s strengths shine is in profitability. Its net margin pings at 14.81%, outpacing 74.57% of its peers. Thus, it’s one of the resilient stocks despite some not-so-great stats.
In closing, analysts peg SRE as a consensus moderate buy. Their average price target hits $168.11, implying nearly 10% upside potential.
BJ’s Wholesale Club (BJ)
With stubbornly high inflation hitting consumers hard, some of the best defensive stocks to buy stem from the big-box retailers. However, I’ve already talked about the usual suspects so it’s time to shine the spotlight on BJ’s Wholesale Club (NYSE:BJ). A membership-only warehouse club chain, BJ’s features similar fundamentals to that other membership-only warehouse club. Basically, bulk purchases help mitigate the sting of inflation.
Financially, BJ’s presents a solid profile, making it an ideal choice among recession-resistant stocks. On the balance sheet, BJ’s features an Altman Z-Score of 4.52. Again, this stat reflects high stability and low bankruptcy risk. Operationally, the retailer posts a three-year revenue growth rate of 14.3%. This stat ranks above 83.39% of companies listed in the defensive retail industry. Also, its net margin comes out to 2.66%, beating out nearly 65% of sector rivals.
Turning to Wall Street, analysts peg BJ as a consensus moderate buy. Their average price target stands at $82.36, implying nearly 12% upside potential.
Conagra Brands (CAG)
An American consumer packaged goods holding company, Conagra Brands (NYSE:CAG) makes and sells products under various brand names that are available in supermarkets, restaurants, and food service establishments. Naturally, Conagra ranks among the top defensive stocks to buy because it feeds a critical human need. We, humans, don’t perform so well without a daily minimum intake of calories.
Financially, it must be stated that Conagra doesn’t quite feature the same magnitude of green ink as other recession-resistant stocks. Perhaps most problematic when it comes to the balance sheet, Conagra’s cash-to-debt ratio sits at 0.01. That’s crazy low for the consumer packaged goods industry and frankly other sectors.
However, Conagra enjoys a solid net margin of 6.59%. Also, the market prices CAG at a forward multiple of 12.84. As a discount to projected earnings, Conagra ranks better than 70.14% of the competition. Looking to the Street, analysts peg CAG as a consensus moderate buy. Their average price target lands at $41.92, implying over 13% upside potential.
Estee Lauder (EL)
An American multinational cosmetics company, Estee Lauder (NYSE:EL) is a manufacturer and marketer of makeup, skincare, fragrance, and hair care products. While it might not be everyone’s first idea for defensive stocks to buy, Estee Lauder could be quite relevant. In particular, with companies recalling their workers back to the office, the incentive to look presentable accelerates. That should be net beneficial for EL.
Another reason to consider EL as one of the recession-resistant stocks centers on its financials. While it doesn’t enjoy the strongest balance sheet ever, the cosmetics giant features an Altman Z-Score of 6.19, reflecting robust resilience against potentially incoming headwinds. Operationally, the company features an okay three-year revenue growth rate of 6.6%. However, this stat might rise with the back-to-office movement. Also, its net margin pings at 9.13%, beating out 77.25% of its peers.
Finally, analysts peg EL as a consensus strong buy. Their average price target stands at $290.50, implying over 14% upside potential.
Theoretically offering consumers some liquid relief, Anheuser-Busch (NYSE:BUD) got into some hot water recently because of its partnership with a social media star. Long story short, conservative commentators objected to Anheuser’s Bud Light brand working with Dylan Mulvaney, a TikTok star who documented her gender transition journey. To be fair, the move seems risky because consumer demographics data reveals that Republicans more so than Democrats prefer light beer brands, including Bud Light.
However, as I wrote for Fintel, other companies generated far worse controversies, scandals that actually hurt millions of households. Yet, those enterprises did just fine in the end and that might be the case for Anheuser. Financially, the metrics undergirding BUD stock could use some work. However, Anheuser is profitable, featuring a net margin of 10.33%. This stat ranks better than 66.18% of its peers, making BUD one of the top defensive stocks to buy.
Lastly, analysts peg BUD as a consensus moderate buy. Their average price target stands at $74.67, implying almost 16% upside potential.
On the date of publication, Josh Enomoto 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.