Weak GDP numbers, lackluster manufacturing reports, high unemployment numbers, and a week straight of down days for the S&P 500 have many people wondering if stocks are worth owning. There is a way to put some shock absorbers on the market's wild ride and still own stocks: play defense.
Defensive stocks are typically established, dividend-paying companies with products that are always in demand. Think food, beverages, utilities, health care, etc. These stocks won't protect against a loss, but they tend to hold up better than the overall market in a downturn.
But which stocks? I ran the CAPS Screener to help find stocks that fit a defensive profile and are good candidates for further research. The criteria I set were:
- Market capitalization greater than $10 billion (established companies)
- CAPS rating of 4 or 5 stars (out of five)
- Price-to-earnings less than 18 (earnings to cover a dividend)
- LT debt-to-equity ratio less than 1.0 (manageable debt levels to deal with trouble)
- Current dividend yield of 2%-5% (a reasonable dividend provides price support and income while a high dividend can be unsustainable or a sign of trouble)
- Beta -- a measure of volatility relative to the market -- of less than 0.8.
The screen returned 33 stocks across a number of sectors, including the seven shown below.
Company |
Debt-to-Equity Ratio |
Dividend Yield |
Beta |
PE (TTM) |
CAPS Rating (out of 5) |
Sector |
---|---|---|---|---|---|---|
Chevron |
0.09 |
3.0% |
0.73 |
9.2 |
**** |
Basic Materials |
General Mills |
0.87 |
3.3% |
0.19 |
13.7 |
**** |
Consumer Goods |
Kimberly-Clark |
0.99 |
4.3% |
0.39 |
15.4 |
***** |
Consumer Goods |
Chubb |
0.26 |
2.5% |
0.41 |
8.8 |
**** |
Financial |
Abbott Laboratories |
0.51 |
3.8% |
0.3 |
15.4 |
***** |
Health Care |
McDonald's |
0.73 |
2.8% |
0.36 |
17.5 |
**** |
Services |
Exelon |
0.86 |
4.7% |
0.61 |
11.1 |
***** |
Utilities |
Source: Motley Fool CAPS stock screener. TTM = trailing 12 months.
These stocks represent a variety of sectors and business models, but all share strong balance sheets, good dividend yields, less-than-market volatility, reasonable valuations, and high ratings from our CAPS community.
A little defense is just the ticket for investors worried about the possibility of further market drops but who still want to be holding stocks.
You can follow any of the stocks mentioned using our free watchlist service, My Watchlist.
- Add Chevron to My Watchlist
- Add General Mills to My Watchlist.
- Add Kimberly-Clark to My Watchlist
- Add Chubb to My Watchlist.
- Add Abbott Laboratories to My Watchlist
- Add McDonald's to My Watchlist.
- Add Exelon to My Watchlist.