The year 2017 has not been a normal one at all for investors. The bull market is eight years old, and the Trump bump from late 2016 hasn’t been met by any serious stock market sell-off in 2017. The markets have overcome many pressures and risks in recent months and years, and investors have found a reason to buy the stock market every time any weakness has been seen. As the summer approaches, many investors fear that a stock market correction could come at almost any time. This is when defensive stocks can come into play.
Stocks have risen well over 200% from their V-bottom lows in March of 2009. The pro-growth economic Trump policies are still potentially months away from being finalized, and many Americans feel that they may not come to fruition at all. There are many skeptics about the likelihood and magnitude of what tax plans the Trump administration will actually get passed. Economic growth under gross domestic product (GDP) remains somewhat muted. Some of the strong January and February economic readings have been followed by more tempered growth. The Federal Reserve still wants to keep raising interest rates. And international tensions remain high.
Does all this add up to a big stock market sell-off being imminent? Maybe, but maybe not. The stock market has yet to get hit by any silver bullet that has managed to kill the bull. Still, there is always the mantra of “Sell in May and go away” that has to be considered. Summer is traditionally a time that the stock market is not at the top of investors’ minds and goals. They call it the “summer doldrums” for a reason.
24/7 Wall St. has reviewed many defensive stocks over the years, and the class of defensive stocks ahead of the summer of 2017 has been tailored to the market as it stood at the time. While defensive stocks are meant to act as a safe haven during slow-downs or sell-offs, investors do have to know that a sharp 5%, 10% or stronger drop in a very short time generally will not be good for any type of stock — and that means defensive stocks too! The goal in 2017 was to find stocks that are expected to still rise but also that are expected to not sell off as much as the broad market if an overdue sell-off does come to the stock market.
To qualify as a truly defensive stock, these are generally in health care, food, water, tobacco, telecom, utilities, consumer products and other items that consumers have to have whether or not the economy is good. They generally all have stable earnings and growing dividends, and none of the companies are new ones in technology or with speculative primary business strategies. These defensive stocks would also all qualify under a “widows and orphans” suitability test that brokers have to consider when it comes to evaluating if investors should own stocks.
In order to derive the most attractive defensive stocks for investors ahead of the summer of 2017, we screened close to 50 of our traditional defensive stocks. After finding eight stocks in industries and offering truly defensive positions, adequate values and solid dividends, most of these companies still trade at a discount to the consensus analyst price target from Thomson Reuters.
One thing investors need to at least consider is what to expect if their anticipated stock market correction doesn’t come this year. Defensive stocks can rise (some handily) in a rising stock market, but growth is likely to trump defensive stocks if the stock market continues to rally into the summer and into 2018 and beyond.
These eight stocks were not the only ones that may have qualified, but they did fit the bill on almost every front, with significant market caps, solid dividends, raised dividends, upside from analysts and more. Here are the eight most attractive defensive stocks for investors seek refuge in for the summer of 2017.