In this article, we discuss 11 best defensive stocks for an upcoming crash. If you want to read about some more defensive stocks, go directly to 5 Best Defensive Stocks For An Upcoming Crash.
The Federal Reserve recently raised interest rates in the United States by three quarters of a percentage point, continuing on an aggressive policy that began in March this year and marked the most aggressive tightening since the central bank started using the overnight funds rate as a principal policy tool in 1990. Senior Fed officials also signaled the intention of continuing to hike until the funds level hits a terminal rate or end point of 4.6% in 2023. This means that there will be another quarter-point rate hike next year.
The stock market has been in a meltdown since the decision was announced. Investors have been dumping growth names in favor of defensive plays like Berkshire Hathaway Inc. (NYSE:BRK-B), Merck & Co., Inc. (NYSE:MRK), and Exxon Mobil Corporation (NYSE:XOM). Amid criticism over a looming failure to negotiate a soft landing, Federal Reserve Chair Jerome Powell has said that “no one knows whether this process will lead to a recession or, if so, how significant that recession would be”.
The hike led to another downturn in the Dow Jones Industrial Average, that sank below 30,000 for the first time since June and wiped out everything investors had gained since November 2020. As the economic growth slows amid supply chain pressures, soaring global food and fuel prices, the Russian invasion of Ukraine, and rolling factory shutdowns in China, investors are scrambling to shield their portfolios, which had grown tech-heavy due to the economic boom of the past decade.
Our Methodology
Stocks that operate in defensive sectors like energy, pharma, and consumer goods were preferred for the list. The analyst ratings and business fundamentals of the firms are also discussed to provide readers with some additional context for their investment choices. The hedge fund sentiment around each stock was calculated using the data of around 900 hedge funds tracked by Insider Monkey in the second quarter of 2022.
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Best Defensive Stocks For An Upcoming Crash
11. OGE Energy Corp. (NYSE:OGE)
Number of Hedge Fund Holders: 13
OGE Energy Corp. (NYSE:OGE) operates as an energy and energy services provider that offers physical delivery and related services for electricity, natural gas, crude oil, and natural gas liquids. The firm posted earnings for the second quarter of 2022 on August 4, reporting earnings per share of $0.36, missing market estimates by $0.06. The revenue over the period was $803 million, up more than 39% compared to the revenue over the same period last year and beating analyst expectations by $196 million.
On September 9, Mizuho analyst Anthony Crowdell maintained a Neutral rating on OGE Energy Corp. (NYSE:OGE) stock and raised the price target to $42 from $39, noting the largest regulatory overhang this year on the firm had been removed.
At the end of the second quarter of 2022, 13 hedge funds in the database of Insider Monkey held stakes worth $213 million in OGE Energy Corp. (NYSE:OGE), compared to 20 the preceding quarter worth $228.8 million.
Just like Berkshire Hathaway Inc. (NYSE:BRK-B), Merck & Co., Inc. (NYSE:MRK), and Exxon Mobil Corporation (NYSE:XOM), OGE Energy Corp. (NYSE:OGE) is one of the best defensive stocks to buy according to hedge funds.
10. DTE Energy Company (NYSE:DTE)
Number of Hedge Fund Holders: 29
DTE Energy Company (NYSE:DTE) engages in utility operations such as generation, purchasing, distribution, and selling of electricity. The company is one of the most prominent defensive stocks to invest in. On August 10, DTE Energy Company (NYSE:DTE) announced that it had signed an agreement with carmaker Ford to add 650MW of new solar energy in Michigan to power Ford facilities, which will increase the total amount of installed solar in the state by nearly 70% and allow for Ford manufacturers in the state to be assembled using renewable energy sources.
On July 18, Barclays analyst Eric Beaumont maintained an Equal Weight rating on DTE Energy Company (NYSE:DTE) stock and lowered the price target to $131 from $141, noting there were expectations of a lower group multiple than previously used in the power sector.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Millennium Management is a leading shareholder in DTE Energy Company (NYSE:DTE), with 987,487 shares worth more than $125 million.
9. Dominion Energy, Inc. (NYSE:D)
Number of Hedge Fund Holders: 30
Dominion Energy, Inc. (NYSE:D) produces and distributes energy in the United States. The firm is among the best defensive stocks to invest in. The company has an impressive dividend profile. It has consistently paid a dividend to shareholders for the past 21 years. On August 3, the firm declared a quarterly dividend of $0.6675 per share, in line with previous. The forward yield was a solid 3.43%. The dividend is payable to shareholders by late September and early October.
On July 18, Barclays analyst Eric Beaumont maintained an Equal Weight rating on Dominion Energy, Inc. (NYSE:D) stock and lowered the price target to $86 from $93, noting that general market issues were a near-term headwind for the power sector.
At the end of the second quarter of 2022, 30 hedge funds in the database of Insider Monkey held stakes worth $573 million in Dominion Energy, Inc. (NYSE:D), compared to 34 in the previous quarter worth $696 million.
8. Emerson Electric Co. (NYSE:EMR)
Number of Hedge Fund Holders: 47
Emerson Electric Co. (NYSE:EMR) is a technology and engineering company providing various solutions for customers in industrial, commercial, and residential markets. The firm is among the best defensive stocks to invest in. On August 31, the company announced that the corporate venture capital arm of the firm had made a strategic investment in the communications firm Spearix Technologies. Under the deal, the former will support the technology and early stage growth of the latter while expanding upon the Industrial Internet of Things capabilities.
On August 16, Bernstein analyst Brendan Luecke assumed coverage of Emerson Electric Co. (NYSE:EMR) stock with a Market Perform rating and lowered the price target to $100 from $105, noting the firm delivered mixed second quarter results.
Among the hedge funds being tracked by Insider Monkey, Chicago-based firm Citadel Investment Group is a leading shareholder in Emerson Electric Co. (NYSE:EMR), with 2.9 million shares worth more than $233 million.
7. Colgate-Palmolive Company (NYSE:CL)
Number of Hedge Fund Holders: 55
Colgate-Palmolive Company (NYSE:CL) manufactures and sells consumer products worldwide. It is one of the elite defensive stocks to invest in. The company has an impressive dividend profile. It has consistently paid a dividend to shareholders for the past 58 years. These payouts have also registered consistent growth in these five decades. On September 9, the firm declared a quarterly dividend of $0.47 per share, in line with previous. The forward yield was a solid 2.41%.
On August 2, Barclays analyst Lauren Lieberman maintained an Equal Weight rating on Colgate-Palmolive Company (NYSE:CL) stock and raised the price target to $74 from $71, noting the firm had reported better-than-expected organic sales growth in the second quarter.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm First Eagle Investment Management is a leading shareholder in Colgate-Palmolive Company (NYSE:CL), with 11 million shares worth more than $899.8 million.
In its Q2 2022 investor letter, First Eagle Investments, an asset management firm, highlighted a few stocks and Colgate-Palmolive Company (NYSE:CL) was one of them. Here is what the fund said:
“Shares of consumer staples giant Colgate-Palmolive Company (NYSE:CL) have performed well as investors rotated into more recessionary-resilient defensive stocks amid the broader selloff during the second quarter. The company raised revenue guidance for 2022 but lowered its margin outlook because of higher costs for raw materials, packaging and logistics; we believe that the company’s size and market share provide it with options to mitigate the inflation challenges it faces. We continue to like Colgate- Palmolive’s dividend and previously announced $5 billion stock buyback program.”
6. The Coca-Cola Company (NYSE:KO)
Number of Hedge Fund Holders: 60
The Coca-Cola Company (NYSE:KO) is a beverage company that manufactures, markets, and sells various non-alcoholic beverages worldwide. It is one of the elite defensive stocks to invest in. On September 12, media reports indicated that the Japan unit of the firm had signed a new collaboration with Kirin Holdings Company to develop a health drink that contains live bacteria to help boost immunity. Kirin is the first food and beverage company in Japan to be granted special approval for immunity related advertising.
On September 6, HSBC analyst Carlos Laboy maintained a Buy rating on The Coca-Cola Company (NYSE:KO) stock and increased the price target to $76 from $72, noting the firm had new revenue drivers in Latin America.
At the end of the second quarter of 2022, 60 hedge funds in the database of Insider Monkey held stakes worth $28 billion in The Coca-Cola Company (NYSE:KO), compared to 64 in the preceding quarter worth $29 billion.
Along with Berkshire Hathaway Inc. (NYSE:BRK-B), Merck & Co., Inc. (NYSE:MRK), and Exxon Mobil Corporation (NYSE:XOM), The Coca-Cola Company (NYSE:KO) is one of the best defensive stocks to buy according to hedge funds.
In its Q2 2022 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and The Coca-Cola Company (NYSE:KO) was one of them. Here is what the fund said:
“Over the last year, we have repositioned our portfolio to navigate the course we see ahead. We added to more defensive areas of the portfolio like consumer staples (The Coca-Cola Company (NYSE:KO)). While the next month or two will likely prove choppy on account of the Omicron variant, we believe that Omicron, like Delta, represents a speed bump on the way to recovery rather than a true change in course. We see strong economic momentum continuing in 2022 and we expect interest rates to rise. After a decade of remarkably low rates, we would not be surprised if this change in direction is accompanied by some fits and starts in the markets. With our emphasis on pricing power, purposeful sector exposure, valuation discipline, and a strong dividend profile, we believe we are well-positioned for the year ahead.”
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Disclosure. None. 11 Best Defensive Stocks For An Upcoming Crash is originally published on Insider Monkey.