We aren’t blind to consumers’ search for value amidst strained financial resources, and the near-term impact this is having on retailers. While we view this shift as a temporary byproduct of the economic backdrop, we see continued opportunities for growing online penetration. On the flip side, the generally slow growth of defensive stocks often leads to smaller gains during a bull market. When other stocks are soaring, defensive stocks are more likely to perform below the market.
According to data from FactSet, the consumer staples sector had the highest percentages of companies that cited “inflation” on their Q4 earnings calls during this period. lmfx review This suggests that inflation is a key concern for many consumer staples companies this year. Consumer staples stocks typically experience modest, albeit, steady growth.
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International Game Technology (IGT) was projected to net $677.07, based on dividends, plus the median of target price estimates from ten analysts, less broker fees. The Beta number showed this estimate subject to volatility 27% more than the market as a whole. Investing in defensive stocks may lower your overall risk as part of a diversified portfolio. As the name implies, they can act as a kind of protective shield that helps investors endure market downturns. Defensive stock funds can reduce risk and losses in the value of your portfolio during economic declines, but these funds can still lose value during a market correction or bear market. For this reason, defensive sector funds are most effective when you use them as one part of a diversified portfolio of mutual funds.
In a bid to grow sales volume and market share—and responding to input costs that eased in the past year—some companies slowed their price increases in 2023 and offered more discounts. But this led to decelerating revenue growth in the sector in 2023, which weighed on the stocks even as companies delivered better-than-feared earnings. Higher interest rates also lured many investors toward fixed income and away from dividend-paying stocks. Surprisingly, cyclical stocks performed better than defensive stocks even against the backdrop of a global pandemic and economic recession. As we consider the market environment in 2021, we have a new administration in the White House, ramped-up COVID-19 vaccine distribution, additional fiscal stimulus, and pent-up demand for travel and leisure.
What Is a Defensive Stock?
Defensive stocks tend to perform better than the broader market during recessions. However, during an expansion phase, they tend to perform below the market. If the market drops 2% in a week, then we would expect the stock to lose only about 1%. On the other hand, a 2% price gain in the market for one week leads to an expected increase of just 1% for the defensive stock with a beta of 0.5. So some potential downside guidance as well that led to some of the pressures in the space. Right now, we view the space as about fairly valued, slightly above 1 times under the price/fair value basis, but relative to other sectors certainly cheaper than most other sectors we cover.
- With approximately 84% of the Industrials sector having reported 4Q23 results, cash flows continue to be strong with a few…
- For my own investing, I plan to look to these scores to augment my traditional thinking about defensiveness.
- The consumer discretionary sector consists of a variety of industries that can be sensitive to changing economic conditions and bellwethers of consumer spending.
When picking mutual funds or ETFs for your portfolio, strive for diversification in your choice of stocks from the sectors and sub-sectors. This sector includes companies that offer communication services through cellular, fiber-optic, fixed-line, wireless, and high-bandwidth networks. Their businesses follow known patterns through each phase of the economic cycle and thus tend to preserve value as the economy moves into a recession. Fidelity Select Communication Services Portfolio (FBMPX) is one such mutual fund that grants investors exposure to this sector. While defensive sectors remain primarily stable in price throughout the economic cycle, the trade-off is that they offer less drastic growth during market upswings, compared to higher-risk, cyclical industries. If you are looking for a place to stash your cash during tough times, forget about your mattress.
Chairman & CEO recently sold US$15m worth of stock
The demand for consumer discretionary stocks normally increases or decreases as the economy grows or weakens. And since consumers typically purchase non-essential goods when they have discretionary income, anything else that threatens that income, such as lower wages or increasing prices, may also affect stock values. For my own investing, I plan to look to these scores to augment my traditional thinking about defensiveness. That means that I will not presume that a stock is defensive if it is in the utilities, healthcare, or consumer staples sector. And the corollary is not to dismiss a company as non-defensive if it is in a sector like Communications or Information Technology.
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When GDP is growing, it indicates a strengthening economy where people and businesses are willing to spend more. Conversely, when GDP is decreasing, it is an indication of economic contraction and the need for spending prudence. Companies that supply these types of goods and services are usually either called consumer discretionaries or consumer cyclicals. As such, they may not appeal to investors who seek rapid growth, or who are willing to take on a higher degree of risk for higher potential returns. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.
Both are very strong players within fairly consolidated industries, dominant market share positions, and still some emerging-market growth potential, as well. Both pay pretty strong dividends, certainly above 2%, and so you get that part of the story as well. I believe that companies with attractive valuations and strong pricing power may offer the strongest returns potential for 2024. Companies that can raise prices or hold them steady may be more likely to meet their profit-margin forecasts. And companies that have invested gains in advertising and long-term brand building may have an added tailwind.
For this analysis, I used FactSet’s economic sector classifications for the Russell 1000 with the sectors categorized as shown in the table below. Apartment real estate investment lexatrade reviews trusts (REITs) are also deemed defensive, as people always need shelter. When looking for defensive plays, steer clear of REITs that focus on ultra-high-end apartments.
Water, gas, and electric utilities are examples of defensive stocks because people need them during all phases of the business cycle. Utility companies also get another benefit from a slower economic environment mercatox exchange reviews because interest rates tend to be lower. Names like Philip Morris, we think, right now is a pretty attractive name; Coke is another name that we think is also particularly attractive in this environment.
Prefer to invest in the consumer staples sector via a ready-made portfolio? Syfe’s Core portfolios hold the XLP ETF as part of their diversified holdings. With Core portfolios, you can start investing from any amount and dollar cost average effectively every month. You can invest in the consumer staples sector through individual stocks or ETFs. Investors looking for broad exposure to the sector usually choose ETFs for diversification and convenience. Finally, although consumer staples stocks hold up well in recessionary periods, they tend to lag the broader market during boom times.
After its dividend cut, we believe the firm is now poised to pay down debt and enhance its financial flexibility. We see growth opportunities for AB InBev in emerging markets, such as Africa and Latin America. The consumer defensive sector has lagged market performance this quarter through Dec. 5, returning 3.8% compared with the market’s returns of 9.0% (Exhibit 1). The consumer discretionary sector of the economy consists of manufacturing and services industries with consumer discretionary companies. Normally, these companies and their industries are sensitive to changing economic conditions.
