In times of economic uncertainty and market volatility, investors often turn to defensive stocks to protect their portfolios from market downturns. Defensive stocks are relatively immune to economic fluctuations and tend to perform well in good and bad times. They are often found in industries such as utilities, consumer staples and healthcare, which provide products and services that people use regardless of the state of the economy.
This article will discuss three defensive stocks that investors can consider adding to their portfolios to navigate the current market environment. These companies have a track record of steady growth and stable earnings, making them attractive options for risk-averse investors who prioritize capital preservation over high returns.
Let’s dive in.
|Bank of America
Restaurant Brands (QSR)
In my view, Restaurant Brands (NYSE:QSR) is one of the best defensive stocks in this market right now. This company owns some of the best fast-food brands in the market. With Burger King, Tim Horton’s, Popeye’s Louisiana Kitchen and recently-acquired Firehouse Subs, Restaurant Brands boasts some of the most renowned world-class franchise businesses in the world. This makes the company an excellent choice for risk-averse investors seeking a stable investment with steady growth potential.
From a technical standpoint, QSR stock is currently seeing an upward trend. Interestingly, the company’s prospects have been positively impacted among technical analysts due to its strong fundamentals and growing market share in the food services industry.
While relatively stable compared to other stocks, QSR stock has endured a tumultuous few years. Like many other companies, it was heavily affected at the start of the pandemic, resulting in a significant decline in sales. The company’s stock price dropped drastically, going from approximately $90 per share before the pandemic to a low point in the mid-30s within a few weeks.
Like other stocks, QSR quickly rebounded and has remained in a relatively stable trading range since then. In 2022, the company finally witnessed a considerable surge in sales that surpassed its pre-pandemic levels, causing the stock to rally impressively.
Given the increased market risks and the fact Restaurant Brands International’s shares seem reasonably priced, there may be more attractive alternatives for investors seeking to purchase stocks in February 2023. That said, for those who own QSR stock, this is a must-hold in this period of economic uncertainty.
Bank of America (BAC)
One of the biggest banks in the U.S., and in the world for that matter, Bank of America (NYSE:BAC) is another company I’d put in the defensive stocks to buy in an uncertain market bucket.
This top lender has seen incredibly strong earnings and profit growth of late. Accordingly, given the rather uncertain outlook for banks, it’s clear that BAC stock remains a top pick among many individual and institutional investors. That’s mainly due to the company’s diversified business model, with retail banking, corporate banking, wealth management, asset management and insurance services divisions.
Like other banks, Bank of America experienced a surge in 2022 due to the Federal Reserve’s aggressive interest rate hikes. The Fed raised rates by 25 basis points in March, 50 basis points in May and then continued to grow rates by 75 basis points at each subsequent meeting. The year concluded with a 50-point rate hike, placing the federal funds rate banks charge each other for overnight loans in the range of 4.25% to 4.5%.
Bank of America has another potential advantage, which is its credit quality. While the company’s net charge-off ratio increased in the fourth quarter, the proportion of nonperforming loans decreased. Indeed, these metrics will be crucial to monitor in the first few quarters of 2023. Nonetheless, the bank has diversified its loan portfolio over time, reducing its credit risk overall.
Bank of America is currently a sound investment due to its low forward price-to-earnings ratio of 9.5 and its stable and sustainable dividend yield of 2.6%, with a payout ratio of 27%. These factors make it an attractive purchase at present.
It is anticipated that the bank will be able to effectively handle the uncertain economic conditions of 2023. The bank is expected to perform exceptionally well when the economy improves in 2024.
Occidental Petroleum (OXY)
Last on this list of defensive stocks to buy is Occidental Petroleum (NYSE:OXY). This energy conglomerate interests a relatively wide range of investors, including the one and only Warren Buffett. Indeed, any stock Buffett taps as a core holding belongs on a list of defensive stocks.
The company has a fully integrated business model that concentrates on producing oil and gas and manufacturing basic materials, petrochemicals, polymers, and specialized chemicals. Last year, Occidental Petroleum outperformed many competitors due to its diversified strategy.
The sizeable, self-governing enterprise that extracts oil and natural gas has been putting money into properties in the U.S., Middle East, Africa and Latin America that have reduced production expenses and lower drop-off rates. This move fortifies the company’s ability to endure fluctuations in oil prices.
The company’s leadership has stated as long as the prices of oil within the country remain above $40, the enterprise can maintain its current dividend through its ongoing activities. Furthermore, the company has utilized a significant portion of its excess funds to lessen its debts.
Over the long-term, OXY stock is worth holding and adding to on dips. Currently, this stock is on my watch list.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.