Defensive investment strategies are those that maintain holdings in safe assets, which include stocks that meet a certain criteria that avoids losses in market value. These companies operate in businesses characterised by favourable capital structures and liquidity, and have a demonstrated history of producing earnings. Let’s take a look at the three examples below.
Kelly Services, Inc. (NASDAQ:KELY.A)
Kelly Services, Inc., together with its subsidiaries, provides workforce solutions to various industries worldwide. Formed in 1946, and run by CEO George Corona, the company size now stands at 7,800 people and with the company’s market capitalisation at USD $1.10B, we can put it in the small-cap stocks category.
KELY.A has a robust financial position as current assets surpass total liabilities by 4.61x. Additionally, operating cash flow is higher than total debt by over 200%, creating greater safety for investors in a fickle market. Moreover, as its price gives it a US$1.10B value on the market and a PE of 15.58x, there is room for enough active participants in the market for the stock and there could still be space for value in the price, helping curtail the rate of decline in share price during periods of mass selling. Considering earnings have also grown annually at 11.58% over the past 5 years, KELY.A has some of the necessary characteristics to maintain value during a cyclical downfall in the market. Interested in Kelly Services? Find out more here.
S&T Bancorp, Inc. (NASDAQ:STBA)
S&T Bancorp, Inc. operates as the bank holding company for S&T Bank that provides retail and commercial banking products and services. Started in 1902, and run by CEO Todd Brice, the company size now stands at 1,080 people and with the market cap of USD $1.38B, it falls under the small-cap group.
At present the company has a strong balance sheet as 87.88% of liabilities are in the form of deposits, which is a good alternative to many other riskier funds. On top of this, the amount of loans that default sits at an insignificant 0.42% of total loan assets, meaning if economic conditions dampen the company’s ability to grow earnings, STBA should still be able to service debt. Furthermore, at a US$1.38B market cap , there is enough room for a diverse investor base and therefore you can expect a present buyer and seller base even in tough times, which minimises the potential for rapid share price falls in down cycles. The past 5 years show the company has grown earnings by 13.22% annually and recorded a return-on-assets over the previous twelve months that exceeded the industry average, showing STBA contains many of the valuable traits in a defensive stock. Interested in S&T Bancorp? Find out more here.
La-Z-Boy Incorporated (NYSE:LZB)
La-Z-Boy Incorporated manufactures, markets, imports, exports, distributes, and retails upholstery furniture products, accessories, and casegoods furniture products in the United States, Canada, and internationally. Formed in 1927, and now led by CEO Kurt Darrow, the company now has 8,950 employees and with the stock’s market cap sitting at USD $1.35B, it comes under the small-cap stocks category.
LZB is well-postioned financially as current assets surpass total liabilities by 5.55x. On top of this, cash flow from operations is well-above total debt by 2x, a strong sign, which makes investor capital robust against adverse market conditions. because it’s a mid-cap stock priced at US$1.35B , more buyers and sellers exist for the stock than there would be if it were smaller, which reduces risk of firm price declines and allows you to sell without a large loss due to unattractive spreads. The past 5 years show the company has grown earnings by 7.14% annually and recorded a ROA of 8.23% over the previous twelve months (compared to the industry’s 6.20%), showing LZB contains many of the valuable traits in a defensive stock. Interested in La-Z-Boy? Find out more here.
For more robust companies to add to your portfolio, explore this interactive list of defensive stocks.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.