A defensive stock is one whose profits are minimally impacted by economic downturns. A defensive stock may be found in sectors such as utilities, food, and consumer staples. The common thread is companies providing non-discretionary goods and services necessary for everyday life. A defensive stock may use its more predictable earnings to pay a regular dividend. A defensive stock that is also a blue chip is sometimes referred to as a Widows-and-Orphans stock.
The downside to holding a defensive stock is an economic recovery won't bring an upsurge in profits. The opposite of a defensive stock is a cyclical stock, one that outperforms during economic upturns. Examples include companies providing discretionary consumer goods such as automobiles, homes, and travel services. |
