The 3 Best Defensive Stocks to Buy as Inflation Stays Higher, Longer


  • The confusing stock market of 2023 is favoring these best defensive stocks. 
  • Coca-Cola (KO): Investors are comparing KO to bond yield expectations.
  • Walmart (WMT): Walmart does well in most economic scenarios. 
  • Chevron (CVX): CVX is on track to have a very successful year.
Best Defensive Stocks - The 3 Best Defensive Stocks to Buy as Inflation Stays Higher, Longer

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The stock market in 2023 has been tough to judge. A lot of things have happened. Bullishness has been the main feature led by the emergence of generative AI and a handful of tech stocks that pushed prices higher. Valuation concerns have persisted for many months but they are strengthening as the U.S. Federal Reserve rates are expected to stay higher for longer. That has not helped the markets in September which is historically a weak month anyway. The result is that investors are looking to snap up the best defensive stocks out of fear and an expectation of overall bearishness in the near-term. Let’s look at 3 of the best defensive stocks that should rise as a result of that pivot. 

Coca-Cola (KO)

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As I write this, Coca-Cola (NYSE:KO) share prices are falling. The stock is usually one of the first places investors turn to invest their cash when markets get choppy. That isn’t occurring right now. Why is that? The answer is partially that 10-year bond yields are as high as they’ve been in 15 years. That creates a situation in which investors have a choice between free money and risk even though firms like Coca-Cola are low risk in general. 

However, I’m still recommending KO shares nonetheless. KO stock has come down a few dollars over the last week and that’s resulted in a chance to pick it up at its lowest levels this year. The annual return baked into KO shares is much higher than the 4.6% average 10-year bond yield.

Coca-Cola is predicted to increase $15 beyond its current price and it includes $2 in dividends over the course of a year. That’s close to 30% returns if KO shares simply do what the market expects them to over the next year. Bond yields may be guaranteed but they simply don’t hold much appeal in comparison all things considered. 

Walmart (WMT)

Image of Walmart (WMT) logo on Walmart store with clear blue sky in the background
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Walmart (NYSE:WMT) has a little bit of everything for various investors. It offers safety for conservative investors and is among the best-known defensive stocks. It is a great barometer for retail as the largest retailer globally. And it also offers growth in areas like e-commerce that make it a challenger to firms in that high-growth area of retail. 

It’s simply one of the most well-rounded and balanced investments you’re bound to find. WMT shares are considered to be fairly valued at their current $160 price and are expected to grow over the next year. Even if the current fear gripping the markets suddenly reverses course, Walmart will still be a strong investment. If things get worse, it suddenly looks better because it offers low priced goods that become more appealing the weaker the economy becomes. 

Investors should also consider that Walmart’s earnings have consistently outperformed expectations for the past four quarters. It’s difficult to find an economic scenario in which Walmart doesn’t at least do moderately well. 

Chevron (CVX) 

Chevron Earnings: CVX Stock Sinks Amid Spending Cuts
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Chevron (NYSE:CVX) continues to push higher as prospects for the energy sector brighten. The stock is trading at $166 as I write this. There’s room for it to run higher given that it approached $190 early this year. Oil stocks are back in a major way as prices push higher. As a result, the market may be moving into another 2022 scenario for energy stocks

The beauty of Chevron is that it tends to do quite well overall but has a lower beta meaning it’s less volatile. It also offers a 3.5% dividend that adds another $6 to the value of a share over a year’s time. That makes the bumps along the way much easier to roll with. 

These are uncertain times all around. Chevron and other energy stocks were poor performers over the last decade with the exception of 2022. It’s hard to see what is stopping the end of 2023 from being another 2022 as OPEC reduces output

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 Publishing Guidelines.

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