7 Defensive Stocks to Build a Moat Around Your Portfolio
While the idea of defensive stocks might not seem so relevant amid blistering market performances, investors ought to consider looking under the hood. According to Bank of America, investors have drained $4.4 billion from technology-based securities. Notably, that’s the biggest-ever outflow.
Moreover, investors poured money into investment-grade bonds to the tune of $13.3 billion. That’s the biggest inflow of money since September 2020. To be clear, we’re not necessarily dealing with a doom-and-gloom message. However, the smart money is diversifying, which bodes well for defensive stocks.
Basically, what we’re dealing with are relevant names that can withstand economic downcycles. While a secular blast of red ink may impact every sector, certain companies and industries are better equipped to handle volatility. That’s because their revenue streams are relatively consistent and predictable.
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Now, no one’s saying to conduct a wholesale pivot in your portfolio. However, it just might make sense to consider padding your holdings with these defensive stocks.
Waste Connections (WCN)
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When it comes to defensive stocks, few ideas can hold a candle to Waste Connections (NYSE:WCN). Per its public profile, Waste Connections provides non-hazardous waste collection, transfer, disposal, and resource recovery services in the U.S. and Canada. It offers collection services to residential, commercial, and industrial customers. As well, it provides services to entities involved in the exploration and production (upstream) of energy and commodity operations.
As with many defensive stocks, a key attribute regarding Waste Connections is business predictability. No, the company isn’t lighting up the board with astounding financial performances. However, it’s consistent with its earnings beats. For example, Waste Connections has exceeded estimates for earnings per share going back to at least the first quarter of 2023. The average positive earnings surprise is 1.88%.
For 2024, analysts anticipate revenue of $8.78 billion, up 9.4% from last year’s tally of $8.02 billion. And in 2025, they project sales of $9.38 billion, implying year-over-year growth of 6.9%.
To close, analysts also rate shares a consensus strong buy with a $177.45 average price target. The high-side target lands at $195, making WCN one of the defensive stocks to consider.
Welltower (WELL)
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Easily one of the most relevant defensive stocks to buy, Welltower (NYSE:WELL) is structured as a real-estate investment trust (REIT). Per its public profile, the company “invests with leading seniors housing operators, post-acute providers and health systems to fund the real estate and infrastructure needed to scale innovative care delivery models and improve people’s wellness and overall health care experience.”
Fundamentally, the demographic realities of baby boomer retirements should keep Welltower busy. Admittedly, though, it’s a bit tricker than some other defensive stocks. For example, in Q4 of last year, the company posted EPS of 15 cents, which badly missed the expected print of 26 cents. Another big miss occurred in Q1. However, Q2 and Q3 saw an average positive earnings surprise of almost 26%.
For the current fiscal year, analysts believe EPS will land at $1.26 on revenue of $7.42 billion. That would be a significant jump from last year’s EPS of 66 cents. On the top line, it would represent growth of 11.7%.
Covering experts peg WELL a consensus moderate buy with a $99.21 price target. Also, Welltower sports a forward dividend yield of 2.67%.
Walmart (WMT)
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A big-box retailer, Walmart (NYSE:WMT) really needs no introduction. Basically, the company operates retail supercenters, supermarkets, warehouse clubs and cash and carry stores under its various brand names. As well, Walmart enjoys a significant presence online. It appeals as one of the defensive stocks for its everyday low pricing and one-stop-shop for pretty much anything.
True to form, Walmart’s strength lies in its predictability. In Q4 of last year, the company posted EPS of 60 cents, beating out the consensus target of 55 cents. This resulted in a positive earnings surprise of 9.1%. Its worst showing in the past four quarters was Q3, when the company met the EPS target of 51 cents. Overall, the average positive surprise from Q1 through Q4 came out to just under 7%.
For the current fiscal year (2025), experts believe Walmart will post EPS of $2.35 on revenue of $673.62 billion. That’s reasonable given the everyday importance of the business. Last year, the company posted EPS of $2.22 and sales of $648.12 billion.
Analysts rate Walmart as a consensus strong buy with a $65.73 price target. It features a forward dividend yield of 1.37%.
Ross Stores (ROST)
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At first glance, Ross Stores (NASDAQ:ROST) might not seem the most relevant idea for defensive stocks to buy. Per its corporate profile, the company and its subsidiaries operate off-price retail apparel and home fashion stores. Granted, you could find many of the products that Ross sells at Walmart. However, the difference is that the former enterprise specializes in popular brand names that are discounted.
It’s a speculative proposition but if the economy weakens from here, there could be more layoffs. And the job cuts could mean an end to work from home as rising desperation swings the pendulum back in employers’ favor. If so, ROST stock would look quite appealing. It already does from its financial performances.
From the quarter ended April 29, 2023 to the quarter ended Jan. 30, 2024, Ross has beaten per-share profitability expectations four out of four times. Further, the average positive surprise came out to 9%. For the current fiscal year, experts project EPS of $5.93 and revenue of $21.23 billion.
Perhaps not surprisingly, analysts rate ROST a consensus strong buy with a $159.90 price target. While it’s not generous, the company also offers a forward dividend yield of 1%.
Kenvue (KVUE)
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Spun off from pharmaceutical giant Johson & Johnson (NYSE:JNJ), Kenvue (NYSE:KVUE) specializes in consumer healthcare products. It operates via three segments: Self Care, Skin Health and Beauty and Essential Health. Overall, the company should benefit from everyday relevancies. No matter what happens in the economy, people get the sniffles and the occasional boo-boo. Thus, Kenvue should see predictable sales.
Another factor to consider is that the company owns several well-known brands such as Tylenol and Motrin. Essentially, Kenvue should benefit from longstanding, generational use and brand loyalty. Of course, the consumer health specialist isn’t designed to make investors filthy rich. However, it’s consistent, beating EPS estimates in the past three quarters. The average positive surprise came in at just over 2%.
For the current fiscal year, experts believe that Kenvue will generate revenue of $15.66 billion. That’s up a modest 1.4% from last year’s print of $15.44 billion. However, in 2025, the company might see sales jump to $16.22 billion, representing 3.5% year-over-year growth.
Analysts rate KVUE a consensus moderate buy with a $22.75 price target. Notably, the company offers a forward dividend yield of 3.93%, making it an attractive idea for defensive stocks.
Realty Income (O)
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Another REIT, Realty Income (NYSE:O) invests in free-standing, single-tenant commercial properties in the U.S., Spain and the U.K. It’s a dividend aristocrat, meaning that it has increased its payouts for at least 25 consecutive years. Even better, the REIT pays out its passive income on a monthly basis. This allows investors to reinvest their income more frequently, helping to compound their returns.
Another enticing factor associated with the passive income is the forward yield of 5.91%. That’s well above average for REITs and adds a sense of security during this ambiguous cycle. However, Realty isn’t a perfect investment. To be blunt, its earnings performances have been mixed, beating in Q1 and Q3 but missing in Q2 and Q4. Overall, the average earnings surprise slipped 3.63% below breakeven.
However, experts are also anticipating a turnaround for this fiscal year. They believe EPS will hit $1.41 on revenue of $5 billion. For context, last year’s EPS was $1.26 while sales came in at $4.08 billion.
Analysts peg O stock a moderate buy with a $60.38 price target. The high-side target lands at $66, making Realty an intriguing idea for defensive stocks.
Sempra Energy (SRE)
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One of the top defensive stocks to consider for market uncertainty, Sempra Energy (NYSE:SRE) fundamentally benefits from a natural monopoly. Any utility firm will enjoy this advantage due to the steep barriers of entry involved in the space. However, Sempra is a particularly powerful name because of its geographic location. Covering many areas of Southern California, the company enjoys a consumer base with a higher-than-average income.
While it’s not the most exciting name in the market, Sempra is consistent. Going back to at least Q1 of last year, the company has beaten per-share profitability estimates. During the past four quarters, the average positive earnings surprise came out to 5.1%.
For the current fiscal year, experts project that EPS will reach $4.81 on revenue of $16.89 billion. That seems reasonable given that last year, EPS was $4.61 on sales of $16.72 billion. For 2025, it’s possible to see EPS of $5.17 on revenue of $17.42 billion.
Finally, analysts rate SRE a consensus strong buy with an $82.61 average price target. Combined with a forward dividend yield of 3.54%, Sempra ranks among the top defensive stocks to buy.
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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.
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