Company / Analytics

Analytics, 24 November 2022

Defensive Stocks to consider for your Portfolio

Defensive stocks have kept Wall Street from crumbling as stocks from technology and other sectors struggle. Defensive stocks can be defined as shares of companies that are considered to be relatively insulated from economic downturns. These companies gain this trait by typically providing essential products or services, and their businesses are less sensitive to changes in consumer spending patterns.

Regular consumption of these products and services results in relatively stable demand, even during economic downturns. Consumer defensive stocks typically include utility companies, food and beverage manufacturers, and healthcare providers. Examples of such companies on Wall Street include Walmart, PepsiCo, and CocaCola among others.

Another trait these companies have is a high barrier of entry, due to their large scale or brand recognition. As a result, they tend to be less volatile than other types of stocks and can provide stability for an investment portfolio. Consumer defensive stocks tend to pay dividends, which can provide income during periods of stock market turbulence.

Coca-Cola (KO) Stocks

Coca-Cola is an easy pick for defensive stocks. While almost every other stock and index on Wall Street has recorded losses in shares prices this year, Coca-Cola shares have dramatically outperformed the market in 2022. Coca-Cola is up 5.6% year-to-date and investors continue to get thrilled as the beverage giant is posting accelerating sales growth and strong profits through most of this turbulent year.

Coke’s shares were hit hard by Covid-19, dropping their shares lower and even underperforming its main rival PepsiCo. The company has however gone forward to rebound in the most spectacular fashion. Sales growth was a blistering 16% in the most recent quarter as consumers stayed mobile by traveling, eating out, and attending more sporting events and concerts. Coke’s business seems especially well-suited to today’s environment, in which consumers are prioritizing on-the-go activities.

Coca-Cola’s expansion rate won’t remain this high for long. Investors might reasonably expect the beverage industry to grow in the mid-single digits over the long term, with the company’s dominant position likely allowing it to reach 10% annual revenue gains.

The earnings outlook is even brighter. Coke is moving into higher-margin niches like energy drinks, alcoholic beverages, and recreational cannabis. These factors should help push its operating margin higher, even though it currently leads the entire industry. Coke turned about 30% of revenue into operating profit this past quarter, after all, or about the same performance as investors saw a year ago.


While the company continues to spend big on sales, with the company spending about $2 billion on its massive global selling infrastructure this year, the company also brags strong cash flow trends. The company is projecting roughly $11 billion of free cash flow this year

Such a resource puts Coca-Cola in the enviable position of being able to allocate capital toward many productive uses, including marketing, product and packaging innovations, and the supply chain. They also fund a growing dividend, which most recently edged up 5% for 2022. The dividend yield currently stands at 2.87%.

Given that the company has increased that payment in each of the last 60 years, it seems likely that Coke’s dividend will be significantly higher in 2027 than it is today. Automatic reinvestments of those payments should support even more substantial returns for investors who choose to hold this stock for five years or longer simply.

Duke Energy Corp (DUK)

Another sector popular with defensive stocks is Energy, which falls under utilities. Duke Energy Corporation is an American electric power and natural gas holding company headquartered in Charlotte, North Carolina. While a small period between Q3 and Q4 was difficult for American energy supplies, specifically during a period from mid-September to the middle of October was a torrid time for American energy suppliers.

Duke shares peaked at $115 last year, but the rot really set in around mid-September with a slump from $110 to $85 in exactly one month. However, the selling was overdone, and it is now possible to buy solid defensive stocks for recovery. good value, an attractive dividend yield, and portfolio diversification. Shares of the company have been edging back up over the past six weeks to stand at $98 per share, where the price/earnings ratio of 19.7 still reflects last year’s stellar growth and looks a little challenging as the company faces tougher challenges.


The North Carolina-based company has two strands: it supplies regulated electricity to 8.2 million customers and natural gas to 1.6 million customers across six adjoining states, and it has developed a renewable energy arm.

Third-quarter results were a little disappointing. Although revenue of $7.97 billion, an improvement of 14.6%, beat analysts’ forecasts, adjusted earnings per share at $1.78 on net income virtually unchanged at $1.4 billion, fell a little short of expectations. The figures were distorted by higher depreciation and amortization costs, lower returns on investments, and higher interest rates. The rising cost of fuel used to generate electricity was another factor, and one that is not going away any time soon.

Duke has now trimmed its forecast earnings per share for the full year to come at just below the previous guidance of $5.30-5.60, but the new figure strips out the proposed sale of renewable energy operations. It expects $5.55-$5.75 to be achieved next year and it has stuck to its projection of longer-term earnings per share growth at 5-7%. Given the current volatile climate for energy, investors should treat these projections with caution.

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