Defensive Stock.

December 22, 2020 By Swapnil Suryawanshi

What Is a Defensive Stock ;

A defensive stock is a stock that provides consistent dividends and stable earnings regardless of the state of the overall stock market. There is a constant demand for their products, so defensive stocks tend to be more stable during the various phases of the business cycle. Defensive stocks should not be confused with defense stocks, which are the stocks of companies that manufacture things like weapons, ammunition, and fighter jets.

Defensive Stock (Definition, List) | Example of Defensive Sectors

What are the best defensive stocks to buy :

Best Value Defense Stocks
Price ($)12-Month Trailing P/E Ratio
Maxar Technologies Inc. (MAXR)30.604.9
Huntington Ingalls Industries Inc. (HII)167.6911.5
General Dynamics Corp. (GD)156.0414.2

What are defensive stocks in India :

Stocks like ITC, which has a beta of 0.74, Infosys technology (0.84) or NTPC (0.72) are considered defensive stocks. Although these stocks create long term wealth at a lower risk, in a sustained bull run these stocks will underperform the market.

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CAC 40 - Wikipedia

Is Amazon a defensive stock :

However, my view is that Amazon is actually a pretty good defensive stock to buy in the current environment. … But Amazon has proven to be quite resilient in the wake of the pandemic. Consumers buy more online when they’re at home more, and Amazon.com benefits from it.

KEY TAKEAWAYS

  • A defensive stock is a stock that provides consistent dividends and stable earnings regardless of the state of the overall stock market.
  • Well-established companies, such as Procter & Gamble, Johnson & Johnson, Philip Morris International, and Coca-Cola, are considered defensive stocks.
  • Defensive stocks offer the substantial benefit of similar long-term gains with lower risk than other stocks.
  • On the downside, the low volatility of defensive stocks often leads to smaller gains during bull markets and a cycle of mistiming the market.

Advantages of Defensive Stocks:

Defensive stocks offer the substantial benefit of similar long-term gains with lower risk than other stocks. Defensive stocks as a group have a higher Sharpe ratio than the stock market as a whole.  Warren Buffett also became one of the greatest investors of all-time in part by focusing on defensive stocks. It is not necessary to take excessive risks to beat the market. In fact, limiting losses with defensive stocks may be more effective.

Disadvantages of Defensive Stocks

On the downside, the low volatility of defensive stocks often leads to smaller gains during bull markets and a cycle of mistiming the market.These failed attempts at market timing using defensive stocks can significantly lower the rate of return for investors.