In this article, we discuss the 10 defensive stocks that are considered as favorites among 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.
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Our Methodology
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.
ClearBridge Investments mentioned The Coca-Cola Company (NYSE:KO) in its “Dividend Strategy” fourth-quarter 2021 investor letter. Here is what the firm said:
“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.
5. CVS Health Corporation (NYSE:CVS)
Number Of Hedge Fund Holders: 72
CVS Health Corporation (NYSE:CVS) is an American healthcare company that operates a network of retail pharmacies and clinics across the United States. The brands that operate under the company include CVS Pharmacy, CVS Caremark, MinuteClinic, and Omnicare.
Earlier this April, Tigress Financial analyst Ivan Feinseth raised the price target on CVS Health Corporation (NYSE:CVS) to $125 from $122 and reiterated a Buy rating on the shares. The analyst says that the company’s primary care focus strategy combined with an “extensive” retail store and service network will continue to drive long-term shareholder value creation.
For the first quarter, CVS Health Corporation (NYSE:CVS) posted earnings per share of $2.22, beating market estimates by $0.08. The company also reported $76.8 billion in revenue for the quarter, outperforming analysts’ forecasts by $1.53 billion.
According to Insider Monkey’s Q1 2022 database, 72 hedge funds held stakes worth $1.56 billion in CVS Health Corporation (NYSE:CVS). This is compared to 71 funds that owned positions in the company in the previous quarter. Harris Associates was the biggest shareholder of CVS Health Corporation (NYSE:CVS) at the end of the first quarter, with a stake worth $421 million.
Here is what ClearBridge Investments had to say about CVS Health Corporation (NYSE:CVS) in its Q4 2021 investor letter:
“Improving health remains a key impact theme for the portfolio, and over the past year or so we have increased our exposure to the health care sector, through the addition of CVS Health, which is well-positioned to help define the future of health care in terms of costs, quality and convenience.”
4. Exxon Mobil Corporation (NYSE:XOM)
Number Of Hedge Fund Holders: 83
Exxon Mobil Corporation (NYSE:XOM), stylized as ExxonMobil, is an American multinational oil and gas corporation that is involved in the production, transportation and sale of crude oil, natural gas, petroleum products and other petrochemicals around the globe. One of the best defensive stocks to own on account of its 39 years of consistent dividend increases, Exxon Mobil Corporation (NYSE:XOM) has gained 64.6% since the beginning of 2022, while the stock delivered a 68.3% return to shareholders in the previous year.
On June 7, Evercore ISI analyst Stephen Richardson upgraded Exxon Mobil Corporation (NYSE:XOM) to Outperform from In Line with a price target of $120, up from $88. He sees long-term earnings growth to be driven by upstream upgrading as well as cost reductions and forecasts Exxon Mobil Corporation (NYSE:XOM) to have an industry-leading ROCE target of 15% by 2025 and 17% by 2027. The analyst also stated that he sees the path to doubling earnings as likely “achievable.”
Exxon Mobil Corporation (NYSE:XOM) reported that its earnings per share for the fiscal first quarter of 2022 came to $2.07 on April 29, falling short of EPS estimates by $0.16. In contrast, the company’s quarterly revenues came in at $90.5 billion, an increase of 53.01% on a year-over-year basis, outperforming revenue estimates by $6.93 billion.
83 hedge funds were long Exxon Mobil Corporation (NYSE:XOM) at the end of the first quarter of 2022, with aggregate stakes worth $8.55 billion. Rajiv Jain’s GQG Partners is the most prominent investor in Exxon Mobil Corporation (NYSE:XOM) with stakes worth approximately $4.27 billion in the company.
Saturna Capital mentioned Exxon Mobil Corporation (NYSE:XOM) in the firm’s fourth-quarter 2021 investor letter. Here is what the firm had to say:
“Few companies maintain their position at the top for more than a decade or two. One that did was Exxon, which appeared decennially from 1980 through 2010. In 2019 it was ranked 10th, but as of writing has dropped to 39th place.”
3. Johnson & Johnson (NYSE:JNJ)
Number Of Hedge Fund Holders: 83
One of the largest healthcare companies in the world, Johnson & Johnson (NYSE:JNJ) is a New Jersey-based corporation that develops medical devices, pharmaceuticals, and consumer packaged goods. Its top products include Tylenol, Stelara, and Invega, among other medical devices.
Another dividend king stock on this list, Johnson & Johnson (NYSE:JNJ) has increased its dividend yield for 59 years in a row, and offers a 2.60% yield as of June 9.
Earlier this May, SVB Leerink analyst David Risinger assumed coverage of Johnson & Johnson (NYSE:JNJ) with an Outperform rating and $200 price target. According to the analyst, the healthcare giant should outperform due to its ability to deliver consistent earnings growth and execute value-enhancing M&A.
As of Q1 2022, 83 hedge funds in the database of Insider Monkey held stakes worth $7.4 billion in Johnson & Johnson (NYSE:JNJ). Of these, Arrowstreet Capital reported holding 6.65 million shares worth $1.17 billion in Johnson & Johnson (NYSE: JNJ).
2. JPMorgan Chase & Co. (NYSE:JPM)
Number Of Hedge Fund Holders: 110
JPMorgan Chase & Co. (NYSE:JPM) is an American multinational investment bank and financial services holding company headquartered in New York City. Having increased its dividends consecutively for the past 12 years, the company currently pays a quarterly dividend of $1.00 per share, in line with the previous, raising it by 11.1% in 2021. As of June 9, the stock’s dividend yield was recorded at 3.19%.
On May 24, Societe Generale analyst Andrew Lim upgraded JPMorgan Chase & Co. (NYSE:JPM) to Buy from Hold with a price target of $150, up from $145. In a note to investors, the analyst states that the company at its investor day delivered positive guidance on net interest income, credit quality and investment bank trading revenues, thus painting a more optimistic image of JPMorgan Chase & Co. (NYSE:JPM)’s excess capital generation from 2023.
According to Insider Monkey’s Q1 2022 database, 110 hedge funds were bullish on JPMorgan Chase & Co. (NYSE:JPM), up from 107 in the previous quarter. These stakes held an aggregate value of over $5.05 billion. Billionaire Ken Fisher’s Fisher Asset Management was the biggest shareholder of JPMorgan Chase & Co. (NYSE:JPM) in the first quarter of 2022, with 7.76 million shares valued at $1.05 billion,
ClearBridge Investments mentioned a few stocks in its Q4 2021 investor letter, and JPMorgan Chase & Co. (NYSE:JPM) was one of them. Here is what the fund said:
“Our energy and financials holdings kept pace in the 2021 rally. In financials, JPMorgan benefited from strong economic growth, a rise in Treasury yields, and a benign credit environment.”
1. Apple Inc. (NASDAQ:AAPL)
Number Of Hedge Fund Holders: 131
Apple Inc. (NASDAQ:AAPL) is an American multinational technology company that specializes in consumer electronics, software, and online services. One of the few stocks that can claim to be pandemic winners, shares of Apple Inc. (NASDAQ:AAPL) rose in value by a staggering 360% between December 2018 and December 2021. Due to an extremely loyal fanbase, and a highly impressive 92% customer retention rate, Apple Inc. (NASDAQ:AAPL) can weather a market downturn amid inflationary pressures.
On June 7, Morgan Stanley analyst Katy Huberty kept an ‘Overweight’ rating on Apple Inc. (NASDAQ:AAPL) shares and a price target of $195. The global tech giant recently introduced a number of software and hardware upgrades to its product lineup at its keynote Worldwide Developers Conference, including updates to the iOS 16 software, a new M2 chip and upgraded versions of the MacBook Air and MacBook Pro laptops. With regards to these reveals, the analyst notes that the company’s most attractive feature is its focus on in-house hardware and software innovation.
Apple Inc. (NASDAQ:AAPL) released its better-than-expected earnings report for the fiscal second quarter of 2022 on April 28. The company reported earnings per share of $1.52, beating market estimates by $0.09. The tech giant also generated quarterly revenues that amounted to $97.28 billion, an increase of 8.59% on a year-over-year basis, crossing the market forecasts by $3.29 billion.
The investor sentiment around the stock has largely been positive, making Apple Inc. (NASDAQ:AAPL) one of the best defensive stocks out there. At the end of the first quarter of 2022, 131 hedge funds in the database of Insider Monkey held stakes worth $182 billion in Apple Inc. (NASDAQ:AAPL). Of these, Warren Buffett’s Berkshire Hathaway held the largest stake in the company, with a position worth $155.56 billion.
ClearBridge Investments, an investment management firm, mentioned Apple Inc. (NASDAQ:AAPL) in its fourth-quarter 2021 investor letter. Here is what the firm said:
“Despite these mixed emerging growth results, the ClearBridge Global Growth Strategy outperformed the benchmark due to resilience among our secular and structural growth holdings. The bulk of these contributions came from U.S. mega-cap growth stocks Apple and Microsoft which continued to uniquely act both offensively and defensively as they have through most of the pandemic.”
You can also take a look at 10 Best Shipping Stocks that Pay Dividends and 10 Best Dividend Stocks to Buy for Long Term Gains.
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Disclosure: None. 10 Favorite Defensive Stocks of Hedge Funds is originally published on Insider Monkey.
