Nervous investors are turning to defensive stocks, and there’s plenty of reason to be among their ranks. The U.S. Federal Reserve’s continuing battle to control inflation is the primary reason catalyzing increasing nervousness. A few weeks ago, the Fed signaled that rates will be held higher for longer. That introduced new fear into the markets.
Unexpectedly strong jobs figures complicate the Fed’s future decisions. High numbers suggest more people will have more money making it more difficult to tamp down inflation. However, earnings data showed that wage growth is slowing. That implies that the Fed’s efforts are working and that aggressive, potentially destabilizing moves are less likely. That volatility makes defensive stocks a logical consideration for investors tired of the whipsaw.
AbbVie (ABBV)
AbbVie (NYSE:ABBV) shares are relatively inexpensive at the moment. That low price, in combination with other factors, makes the stock a buy for defensive-minded investors.
Generally speaking, defensive investors are likely to be attracted to ABBV shares simply because the company is a well-known healthcare firm and healthcare stocks are defensive in nature. Beyond that, and more importantly, AbbVie’s shares remain close to their price when it last released earnings.
The reason that’s important is that AbbVie has shown that it won’t be bogged down by declining Humira sales. Instead, the company has found a way to rejuvenate its immunology portfolio with strong growth from Rinvoq and Skyrizi.
As mentioned, share prices have been stagnant since then. That’s due more to structural market factors than anything. Investors continue to prefer tech and other AI growth related shares making defensive shares less attractive by comparison. That can and will change and ABBV is as good a defensive stock as there is for that shift.
Walmart (WMT)
Walmart (NYSE:WMT) is an interesting stock for many, many reasons. It remains the largest global retailer, the largest grocery retailer and has a burgeoning eCommerce opportunity among those many reasons.
It’s also interesting for a reason you may not expect: Weight loss drugs like Wegovy, Ozempic, and Mounjaro are spiking pharmacy revenues. Some reports have suggested that popular weight loss drugs pose a direct threat to Walmart. The thinking is that they are so highly prescribed and effective as to have a material impact on Walmart’s food sales.
The fact that the company raised its full-year guidance following its Q3 earnings report seems to directly contradict those fears. Instead of contracting, Walmart appears to be thriving. There was no mention of the effects of those drugs on its performance in the earnings release and it remains one of the first defensive stocks investors will flock to at the first signs of bigger trouble.
Berkshire Hathaway (BRK-B)
The general consensus is that Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) stock simply offers strong risk-protection to investors. It’s a well diversified representation of the U.S. economy at large. That makes it a bet on the continued strength of the economy while also being low risk as evidenced by a 0.87 beta.
Berkshire Hathaway’s performance over the last year perfectly exemplifies those characteristics I just mentioned. Its earnings in Q2 2022 went negative as the economy tumbled. U.S. firms were crushed by higher rates and that translated to large losses. However, BRK-B shares hardly winced in terms of share prices. Fast forward a year and earnings are strongly positive as the market has rebounded. Shares are up but only modestly. Investors are relatively protected by investing in BRK-B shares and thus, nervous investors should pay attention to Berkshire Hathaway. Stay in the market but protect yourself.
Interested readers can check out the firm’s holding here. Apple (NASDAQ:AAPL) contributes roughly half of its overall value.
On the date of publication, Alex Sirois 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.
