Defensive Stock 'Havens' For A Crummy Market (PEP, KO, MRK, NVO, PG, CAG, BUD, HRL, CL, MO, CG MCD, KFT, NVO, WTR)
It’s yet another crummy day in the markets with roughly a 280 DJIA point drop before the closing bell went off. Bear Stearns added the most fuel at the end of the day, unemployment was not a big enough help, and American Home Mortgage (AHM) shut most operations. There are many bulls still out there after the malaise ends, and the questions still seem to be around WHEN rather than IF. As always, there are many unleveraged companies that make basic products that are deemed the defensive stocks. We try to simplify the list of names down to the true economically immune names, although there in reality is no such thing as an immune stock. Sell programs kicked in at the end of the day, and these probably got hit too.
If you are looking for buys in a crummy market you want to usually look at the stocks that produce you goods you have to consume. If you eat it, drink it, or smoke it, it’s a defensive stock. We won’t stop using toiletries either. There are many other defensive stocks, but here is a group of stocks from our classic list and we’ve removed the “leveraged names” and those which would do well only in a moderate economic drop. Here goes:
Coca-Cola (NYSE:KO) and Pepsi (NYSE:PEP)….does anyone ever stop drinking sodas or water, or stop eating chips?
Anheuser Busch (NYSE:BUD)….if you drink alchohol, you only drink more when things are bad.
Hormel (NYSE:HRL)….canned meats, deemed on the cheap. Spam is a delicacy somewhere, or at least that is people keep saying.
Kraft (NYSE:KFT)…. maybe it’s too tied to activists, Buffett, Phillip Morris, or whatever, but it’s monster play in the sector.
McDonalds (NYSE:MCD)….best fast food play off the mid to lower income, and they won’t always eat at home regardless.
ConAgra (NYSE:CAG)….food giant that is fairly valued.
Altria (NYSE:MO) & Loews Carolina Group (NYSE:CG)….who says smoking is all bad? Smoking kills, but people insist on buying.
Merck (NYSE:MRK)….drug king did well on last earnings.
Proctor & Gamble (NYSE:PG) and Colgate-Polmolive (NYSE:CL)….they get into your pocketbook regardless of the market unless you stop shaving, washing hands, and brushing your teeth.
Here are two runner-ups:
Novo Nordisk (NYSE:NVO)…. This is a bit challenging since it’s an ADR based in Denmark, but they are virtually a pureplay on insulin and diabetics need it regardless of a market crash.
Aqua America (NYSE:WTR)….largest independent water and waste water play, although high P/E ratio.
As a final reminder, there is no such thing as a “HAVEN” if there is a total market crash. If the market falls 5% in a day or two, these are probably going to get hit hard too. But people will own stocks and many firms HAVE TO own stocks. The defensive names are where they tend to flock to first.
Jon C. Ogg
August 3, 2007
Jon Ogg can be reached at firstname.lastname@example.org; he does not own securities in the companies he covers.