In this article, we discuss the 10 defensive stocks that are considered as favorites among hedge funds. You can skip our detailed analysis of these stocks and the current market situation, and go directly to 5 Favorite Defensive Stocks of Hedge Funds.
While growth stocks are known to generate headlines and excitement, they aren’t without considerable risks, as can be seen in 2022 so far. Household names that skyrocketed from mid-2020 well into 2021 have come crashing down, pulling the S&P500 down 13.80% year-to-date, while the tech-heavy Nasdaq Composite fell into correction territory, falling roughly 25% so far from its record high. With inflation in the U.S. hitting a fresh 40-year record in March as consumer prices rose 8.5% from a year ago, the Fed hinting at multiple 0.75% rate hikes this year, and supply chain problems emanating from China’s Covid lockdowns, investors are bound to feel some levels of anxiety. The bear market seems to be entering a new phase, making it seemingly impossible to guess whether it will lead to a quick rebound or continue to drive indexes lower.
Over the past six months, high-priced tech stocks, including the Big Five mega stocks, with reasonably strong growth prospects, faced a large chunk of the impact amidst the broader market sell-off in tech. In this environment, investors are beginning to shift toward more ‘defensive stocks’.
Defensive stocks are stocks that are considered safer. Although, they might not offer the same opportunity for massive gains that more aggressive stocks do, they belong to sectors like consumer staples and healthcare that are expected to perform in essentially any economic conditions. With products and services that are essential to people’s everyday lives, such stocks tend to hold up better when the economy slows. Additionally, defensive stocks typically need to have tangible earnings and cash flow, which are used to pay dividends, buy back shares or grow businesses through the purchase of competitors. For the long term, the steady nature and compounding dividends of defensive stocks are ideal for investors seeking to protect their portfolios.
In that regard, some of the best defensive stocks that investors can add to their portfolios include Apple Inc. (NASDAQ:AAPL), JPMorgan Chase & Co. (NYSE:JPM), Exxon Mobil Corporation (NYSE:XOM), and Johnson & Johnson Company (NYSE:JNJ), among others listed below.
We analyzed the data of 912 hedge funds tracked by Insider Monkey as of the end of the first quarter of 2022 and picked the most popular defensive plays among these elite money managers.
Favorite Defensive Stocks of Hedge Funds
10: Lockheed Martin Corporation (NYSE:LMT)
Number Of Hedge Fund Holders: 56
Formed by the merger of Lockheed Corporation with Martin Marietta in March 1995, Lockheed Martin Corporation (NYSE:LMT) is an American aerospace, arms, defense, information security, and technology corporation with global interests.
Lockheed Martin Corporation (NYSE:LMT) has raised its dividend for 21 consecutive years, bringing it within striking distance of a spot on the list of dividend aristocrats. On April 20, the company announced a $2.80 per share quarterly dividend, in line with the previous, which will be distributed to shareholders on June 24.
Earlier this April, Argus analyst John Eade raised the price target on Lockheed Martin Corporation (NYSE:LMT) to $500 from $415 and kept a Buy rating on the shares. According to the analyst, the company has consistently delivered positive surprises to the Street in recent years, regardless of whether defense spending was rising or falling, or the White House was occupied by a Republican or a Democratic government. He also cites his “favorable view” of the company’s focus on international revenue diversification, and expects the ongoing geopolitical tension to benefit the defense firm’s sales and earnings going forward.
As of Q1 2022, 56 hedge funds reported holding stakes in Lockheed Martin Corporation (NYSE:LMT), with collective stakes worth $2.44 billion. Among the hedge funds being tracked by Insider Monkey, Ken Griffon’s Citadel Investment Group is a leading shareholder in Lockheed Martin Corporation (NYSE:LMT), with 1.88 million shares worth more than $830 million.
Similar to Apple Inc. (NASDAQ:AAPL), JPMorgan Chase & Co. (NYSE:JPM), Exxon Mobil Corporation (NYSE:XOM), and Johnson & Johnson Company (NYSE:JNJ); Lockheed Martin Corporation (NYSE:LMT) is a stock that can offer relief to investors during a market downturn.
Here is what Vltava Fund had to say about Lockheed Martin Corporation (NYSE:LMT) in its Q4 2021 investor letter:
“Of course, not all of our companies are doing better than we expected. Lockheed Martin fell somewhat short of our expectations last year. In the cases of Lockheed disruptions in the supply and logistics chains. Lockheed uses a great many subcontractors from various countries and could not avoid issues with continuity of supplies. As a result, production will be slightly lower than we had expected.”
9. Walmart Inc. (NYSE:WMT)
Number Of Hedge Fund Holders: 60
Walmart Inc. (NYSE:WMT) is an American multinational retail corporation that operates a chain of hypermarkets, discount department stores, and grocery stores. Operating approximately 4,700 stores in the United States and more than 10,500 retail stores around the world. Well on its way to becoming a dividend king, the company has been raising dividends consistently for the past 49 years.
Earlier this February, Walmart Inc. (NYSE:WMT) raised its quarterly dividend by 1.8% to $0.56 per share, which was distributed to shareholders on April 4. Currently, Walmart Inc. (NYSE:WMT)’s annual dividend stands at $2.24 per share.
On June 6, Baird analyst Peter Benedict maintained an Outperform rating on Walmart Inc. (NYSE:WMT), alongside a $155 price target on its shares following the company’s annual Shareholders’ Meeting. At 19-times the near-term EPS, the analyst likes the company’s blend of defensive near-term appeal and disruptive longer-term optionality.
As of Q1 2022, 60 hedge funds were long Walmart Inc. (NYSE:WMT) with total stakes worth $6.56 billion in the retail giant. Of these, Rajiv Jain’s GQG Partners was the leading hedge fund having stakes of more than $2.29 billion in Walmart Inc. (NYSE:WMT) by the end of the first quarter.
8. The Coca-Cola Company (NYSE:KO)
Number Of Hedge Fund Holders: 64
Arguably the most famous bottled beverage brand in the world, The Coca-Cola Company (NYSE:KO) is a global beverage giant that has interests in the manufacturing, retailing, and marketing of non-alcoholic beverage concentrates and syrups, and alcoholic beverages.
Boasting over 60 years of consecutive dividend growth, The Coca-Cola Company (NYSE:KO) is a dividend king that declared a quarterly dividend of $0.44 per share on February 17, a 4.8% increase from its prior dividend of $0.42.
On April 26, Truist analyst Bill Chappell raised his price target on The Coca-Cola Company (NYSE:KO) to $75 from $70 and kept a Buy rating on the shares. The company’s Q1 results were “strong” with 18% organic growth “well exceeding” expectations thanks to the quarter’s volume growth, pricing, and sales mix.
For the fiscal first quarter of 2022, The Coca-Cola Company (NYSE:KO) announced that its quarterly revenues came in at $10.50 billion, up 16.44% on a year-over-year basis, and outperformed the market by more than $670.79 million. The company also reported an EPS of $0.64, beating expert estimates by $0.06.
Out of all the hedge funds tracked by Insider Monkey, 64 held positions in The Coca-Cola Company (NYSE:KO) with a combined value of $29.17 billion. This is compared to 70 hedge funds in the preceding quarter, with $28.61 billion worth of stakes. Warren Buffett’s Berkshire Hathaway is a notable investor in The Coca-Cola Company (NYSE:KO), and ranks as its biggest shareholder with 400 million shares valued at $24.79 billion.
“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 (Coca-Cola). 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.”
7. Bristol-Myers Squibb Company (NYSE:BMY)
Number Of Hedge Fund Holders: 70
Bristol-Myers Squibb Company (NYSE:BMY) is a New York-based biopharmaceutical giant that sells biopharmaceutical products worldwide, with a focus on pharmaceutical drugs for multiple therapeutic areas. Having increased its payout to shareholders for 16 years in a row, Bristol-Myers Squibb Company (NYSE:BMY) has a yield of 2.84% as of June 9.
BofA analyst Geoff Meacham raised the price target on Bristol-Myers Squibb Company (NYSE:BMY) to $80 from $78 and kept a Buy rating on the shares on June 6. In a research note, the analyst stated that the company announced its plans to acquire the clinical-stage precision oncology company Turning Point (TPTX) for $4.1 billion in cash, which could reach 10 launches with the approval of Turning Point’s repotrectinib in 2023.
For the fiscal first quarter of 2022, Bristol-Myers Squibb Company (NYSE:BMY) produced its earnings report on April 29, with revenues valued at $11.65 billion, up 5.19% on a year-over-year basis. The company also reported an EPS of $1.96, beating expert estimates by $0.07.
Bristol-Myers Squibb Company (NYSE:BMY) is a popular stock pick among elite hedge funds, and by the end of Q1 2022, 70 hedge funds held long positions in the company worth roughly $2.43 billion, compared to 66 hedge funds in the previous quarter. John Overdeck and David Siegel’s Two Sigma Advisors is the biggest stakeholder in the company, with 4.36 million shares worth $318.4 million.
6. The Procter & Gamble Company (NYSE:PG)
Number Of Hedge Fund Holders: 72
The Procter & Gamble Company (NYSE:PG) is one of the largest multinational consumer goods corporations in the world. Due to its diverse portfolio of products that are considered everyday necessities by consumers all over the world, the company is a favorite defensive stock among hedge funds. Considered a dividend king with 65 consecutive years of dividend increases, the company has a 2.56% yield as of June 9.
On June 1, Deutsche Bank analyst Steve Powers lowered his price target on The Procter & Gamble Company (NYSE:PG) to $171 from $177 and maintained a Buy rating on the shares of the company. According to Powers, something “has to break” across the U.S. consumer products space after six months of outperformance against an increasingly difficult cost, consumer, supply, and macro backdrop.
The company posted an EPS of $1.33 by the end of the third quarter of 2022, which beat analysts’ estimates by $0.04. Revenue for the quarter was recorded at $19.38 billion, an increase of 7.02% compared to the year-ago quarter, surpassing market estimates by $687 million.
The Procter & Gamble Company (NYSE:PG) was held by 72 hedge funds at the end of Q1 2022, compared to 67 hedge funds in the previous quarter. Rajiv Jain’s GQG Partners was the company’s largest shareholder for the quarter, with 9.91 million shares worth $1.51 billion.
In addition to Apple Inc. (NASDAQ:AAPL), JPMorgan Chase & Co. (NYSE:JPM), Exxon Mobil Corporation (NYSE:XOM), and Johnson & Johnson Company (NYSE:JNJ); The Procter & Gamble Company (NYSE:PG) is a notable stock that has minimal risk factors.
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Disclosure: None. 10 Favorite Defensive Stocks of Hedge Funds is originally published on Insider Monkey.