Investors Searching For Defensive Safe Havens (PEP, MRK, JNJ, KO, BUD, KFT, CAG, CPB, HRL, MCD, MO, PG, CL)

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Investors usually try to find stocks where they run for cover when the stock market is in turmoil.  This Monday is no exception after seeing the Bear Stearns implosion "takeunder" and the related fall in Lehman.  Those are almost never financial stocks, and you can bet those aren’t the case today.  We keep an index of defensive stocks for crummy markets.  Usually these hold up on down days or don’t fall as much as the market in general.  Today there are very few hiding spots out of our normal go-to defensive stocks.

Defensive Stocks Higher:

  • PepsiCo (NYSE:PEP) $68.67 (+$0.22; 0.32%)
  • Merck (NYSE: MRK) $41.18 (+$0.21; 0.51%)   
  • Johnson & Johnson (NYSE: JNJ) $63.30 (+$0.65; 1.04%)   

Defensive Stocks Lower:   

  • Coca-Cola (NYSE:KO) $57.43 (-$0.10; -0.17%)   
  • Anheuser-Busch (NYSE: BUD) $45.68 (-$0.52; -1.13%)   
  • Kraft Foods (NYSE: KFT)    $29.79 (-$0.08; -0.27%)   
  • ConAgra (NYSE: CAG) $21.15 (-$0.13; -0.61%)   
  • Campbell Soup (NYSE: CPB) $31.41 (-$0.28; -0.88%)   
  • Hormel Foods (NYSE: HRL) $40.16  (-$0.36; -0.89%)   
  • McDonalds (NYSE: MCD) $53.82 (-$0.96; -1.75%)   
  • Altria (NYSE: MO) $70.25 (-$1.53; -2.13%)
  • Procter & Gamble (NYSE: PG) $66.62 (-$0.12; -0.18%)   
  • Colgate Polmolive (NYSE:CL) $75.99 (-$0.29; -0.38%)   

Sometimes there is just no good place to hide.  The good news is that last night and in the wee hours of this morning things were looking far worse than they are right now.

The old rule of thumb is that if you eat it, drink it, or smoke it, it’s a defensive stock.  Interestingly enough, it doesn’t apply to all of the basics of civilization in food, water, clothing, and shelter. 

While medical and drug related stocks have not held up as well in recent months and recent years when there is bad news, these are traditionally considered defensive stocks.  Maybe the plastic surgery can be put off, but diabetics still need insulin, heart patients still need their medication, and more.  This also applies to consumer staples for the basics like toothpaste, razorblades, soap, and the like.

So as far as eating and drinking, the issues to consider are basics in food and no luxury items.  Everyone has to eat and drink water.  This pertains to basic items, and while almost all restaurants are not defensive there are some instances for fast food because of the cost, convenience, portion, and availability. 

Alcohol and tobacco have long been recession proof, and many argue that when times are tough those vices actually see a benefit.  Once again, it might not apply to $100/bottle of whiskey, but Joe Six-Pack is the basic theme and has been for decades.  While smoking kills and while smoking costs money, the argument has long been that people that want to smoke will keep smoking and even smoke more under longer periods of economic weakness.

In today’s markets it seems that oil or utilities would be the defensive sector stocks as well.  The truth is really that that argument depends on the day as far as oil prices and interest rates.

Jon C. Ogg
March 17, 2008