After the Midterm Elections, 10 Defensive Stocks to Buy for 2019

November 7, 2018 by Jon C. Ogg

Source: GBlakeley / iStock
The political pollsters actually got it right this time. The Republican party kept the Senate, but the Democrats took back control of the House of Representatives in the 2018 midterm elections. While this represents more gridlock than has been seen in the past two years, the reality is that stocks were seeing a bit of a relief rally as there were no major surprises. Investors already have seen stocks bounce ahead of the midterms, but there is also the constant reminder for investors that stocks just haven’t been as rewarding for those who bought after big sell-offs.

One area where investors flock to during any periods of uncertainty is defensive stocks or those they believe have some insulation against political and macroeconomic pressures for the foreseeable future. These companies generally offer business models that do well in all but deep recessionary periods, they generally pay solid dividends year after year, and they tend to offer investors more upside after reinvesting dividends back into the stocks than if the investors just settled for the guarantee of U.S. Treasuries. Now investors likely will be scratching their heads to see how a strong economy will blend in with a gridlocked Washington, D.C., as we get into 2019 and start thinking about the next election cycle in 2020.

24/7 Wall St. has picked 10 companies that are likely to have safer business models and will offer some defensive positioning if the economic strength of 2018 is not repeated in 2019. Each of these has some characteristics for which gridlock is good or the balance of power shifting will not hurt their businesses as bad. We have included dividends, consensus analyst target prices from Thomson Reuters and additional color and trading history on each.

As a reminder, if an outright recession or serious market crash arises, the only good news about defensive stocks is that they tend not to fall as much as growth stocks and other cyclical stocks.

Amazon.com Inc. (NASDAQ: AMZN) is arguably a defensive stock because its valuation metrics are always sky-high and the company seems very unconcerned about generating massive profits or paying dividends like other tech giants. If there is an outright recession around the corner, its Amazon Web Services likely won’t be offset by the reliance on endless at-home and at-work shopping delivery. Still, Amazon likely will face less break-up pressure that President Trump hinted at in a recent interview now that there will be a mixed Congress. And its shares were up almost 1% at $1,642.81 ahead of the midterms and up 3% at $1692.00 the morning afterward. Just don’t pretend to be able to justify that high P/E ratio as defensive if a big market sell-off comes. Also, don’t expect Jeff Bezos to pay you a dividend any time soon.

Update: Amazon shares closed up $112.68 at $1,755.49, for a gain of 6.86%, based in part on the implications after the election.

American Water Works Co. Inc. (NYSE: AWK) was last seen trading up 0.9% at $89.90, in a 52-week range of $76.04 to $92.79. This is America’s largest pure-play water utility and serves millions of American residences and countless thousands of businesses every day. The reality is that people are going to drink water, use water at home for food and cleaning, and shower every day. Its yield is better than 2%, and its consensus target price is $92.75. How long can you go without any water?

Update: American Water Works shares closed up $0.99 at $90.09, for a gain of 1.1%, on Wednesday.

Clorox Co. (NYSE: CLX) recently traded near $158, and this stock hit an all-time high of $158.25 the day ahead of the elections. This consumer products company has seen its shares rise $10 in the past few days, based on strong earnings, but one thing that stands out is that its consensus target price was previously $140.50. This was one of the best earnings season movers of late.

Update: Clorox shares closed up $0.57 at $158.67, for a gain of 0.36%.

Crown Castle International Corp. (NYSE: CCI) may not seem defensive on the surface, but its towers and those of rival American Tower power most of the cellphone calls Americans make, no matter which wireless carrier you use. Crown Castle will be spending a lot of cash for the coming 5G boom, but that will bring endless amounts of revenue opportunities for the leaders here. Its 4% dividend yield is almost twice that of its top rival. It saw a 0.6% gain to $111.95 on Wednesday. The 52-week range is $98.85 to $114.97, and the consensus target price is up at almost $120.

Update: Crown Castle shares closed at up $0.52, or up 0.5%, at $111.73 on Wednesday.

Johnson & Johnson (NYSE: JNJ) held up fine during October’s selling, and not even “talc as the new asbestos risk” managed to derail the company. Having consumer products, drugs and other medical products and devices means it is diversified for good times and bad. And the company keeps raising its dividend yield (over 2.5% now) every year and is expected to keep doing so. It saw a 0.7% gain to $143.65 after the midterms, its all-time high is $148.32 and its consensus target price is $146.78. The company also has a mega-cap classification, with its $385 billion market cap.

Update: The shares closed up $2.18 at $144.75, for a gain of more than 1.5%.

McDonald’s Corp. (NYSE: MCD) has become as defensive as you can get in food. After all, it’s cheap, it’s been making cleaner food and it’s now arguably healthier than what public schools are serving the kids to eat these days. With a $141 billion market cap, McDonald’s was up 0.2% at $183.16 on Wednesday after the election. The consensus analyst target is $191.81, and the all-time high is $183.50. That 2.6% dividend yield isn’t the worst thing that could happen either.

Update: Shares of McDonald’s closed up $1.54 at $184.25, for a one-day gain of more than 0.8%.

NextEra Energy Inc. (NYSE: NEE) may not be exciting as a top utility, but it’s not supposed to be. With gridlock promised for at least two years, the stock’s gain was almost 1% to $173.15 the morning after the midterms. That’s down less than $4 from its recent highs. The yield is 2.6%, and the market cap is $83 billion, one-third larger than rival Duke Power (although Duke’s yield is now over 4%). While generating electricity through wind, solar, nuclear and natural gas-fired facilities, the company is unlikely to face any pressure from regulators until 2020 or beyond.

Update: NextEra shares closed up $2.08, or more than 1.2%, at $173.54 after the midterms.

PepsiCo Inc. (NYSE: PEP) was last seen up only about 0.3% around $115.60 after the midterms, but its shares are still down from a 52-week high of $122.51. Being in the sugar-water beverage business is one thing, but it also owns Frito-Lay and snack foods. Do we dare mention that even more marijuana legalization efforts of three states might help that snack food portion of the operations? Pepsi has a 3.3% yield, and the consensus price target is barely $117 now.

Update: PepsiCo shares closed up $0.40, or 0.35%, at $115.61 the day after the midterms.

Procter & Gamble Co. (NYSE: PG) was last seen trading at $91.85, up handily from its 52-week low of $70.73. The stock ticked down in Wednesday’s post-election results, but it has risen about 30% from its lows, it has a yield better than 3% and analysts have been playing catch-up here. Being the world’s largest consumer products company, with a $227 billion market cap, and selling soap, shampoo, diapers and dozens of other recession-proof items seems to have its privileges.

Update: The shares closed down $0.22 at $91.29 on Wednesday on near-term profit-taking and rotation.

Walmart Inc. (NYSE: WMT) is the world’s top brick-and-mortar retailer that can withstand Amazon’s retail pressure, and it is growing its online and services offerings. A higher pay to employees has helped relieve at least some of the internal pressure the company was facing. And a $304 billion market cap, a 2% yield and share buybacks are likely to keep investors feeling safe too. Its shares were up 0.5% at $103.85 the morning after the midterms, with a 52-week and all-time high of almost $110. The consensus analyst target is $105.30.

Update: Walmart’s stock price rose by $0.98, or 0.96%, to $104.32 on Wednesday.