Which of the following is an example of defensive stock?
Examples of Defensive Stocks 1 Utilities. Water, gas, and electric utilities are examples of defensive stocks because people need them during all phases of the business cycle. 2 Consumer Staples. ... 3 Healthcare Stocks. ... 4 Apartment REITs. ...
What are examples of cyclical and defensive stocks?
Examples of cyclical and defensive stocks 1 JPMorgan Chase ( NYSE:JPM) 2 Apple ( NASDAQ:AAPL) 3 General Motors ( NYSE:GM) 4 Boeing ( NYSE:BA) 5 Texas Roadhouse ( NASDAQ:TXRH) More ...
What are the risks of investing in counter-cyclical stocks?
Investing heavily in counter-cyclical stocks carries risks that come from the complexities of the stock market system. If, for example, it appears that the market is headed for a big recession, there are some potential issues to think about before immediately reallocating assets into counter-cyclical stocks or other securities.
What is a countercyclical stock?
A countercyclical stock is a stock whose price tends to move in opposition to the overall business cycle. When the market rises, the stock price falls, and when the market falls, the stock price moves higher. How Does a Countercyclical Stock Work?
What is an example of a countercyclical stock?
Walmart (NYSE:WMT) can be considered countercyclical since the company often increases its sales during tough times. Restaurants: During economic downturns, people eat at home more often than they do during prosperous times, and restaurant stocks often suffer as a result.
Which of the following would likely be classified as a countercyclical industry?
Which of the following would likely be classified as a countercyclical industry? Precious metals and the companies that produce them are countercyclical (i.e., going up when the economy is shrinking, and down as the economy grows).
What are countercyclical stocks?
Counter-cyclical stocks refer to the shares of those companies that outperform or even rise during economic downturns or recessions, making them good diversifiers. Counter-cyclical stocks will also tend to underpeform during periods of economic expansion, when cyclical stocks will do well.
What are cyclicals and defensive stocks?
Cyclical stocks include discretionary companies, such as Starbucks or Nike, while defensive stocks are staples, such as Campbell Soup. Cyclical stocks usually have higher volatility and are expected to produce higher returns during periods of economic strength.
What are defensive stocks?
Defensive stocks are stocks that are considered safer. They might not offer the same opportunity for massive gains that more aggressive stocks do, but they come from sectors like consumer staples and healthcare that are expected to perform in essentially any economic conditions.
What are consumer cyclicals?
Consumer cyclicals are a category of stocks that rely heavily on the business cycle and economic conditions. Consumer cyclicals include industries such as automotive, housing, entertainment, and retail.
Is Apple a defensive stock?
Apple (NASDAQ:AAPL) seems to be a stock which, in spite of a premium valuation, exhibits characteristics of a defensive stock. This isn't that surprising, considering the company's consistent profits and generous shareholder returns of dividends and share repurchases.
What is a defensive company?
A defensive company is a corporation whose sales and earnings remain relatively stable during both economic upturns and downturns. Defensive companies tend to make products or services that are essential to consumers. These products are likely to be purchased whether the economy is booming or in a recession.
What are defensive sectors?
DEFINITION. Defensive sector funds are mutual funds or exchange-traded funds (ETFs) that invest in companies in recession-proof industries. These industries are called "defensive sectors" because they tend to stay stable whether the market is healthy or not.
What are consumer non cyclical stocks?
Non-cyclical consumer stocks are defensive stocks that perform relatively well in declining markets. They slightly underperform the market in bull markets, but make up for the loss in bear markets. IShares Dow Jones US Consumer Goods (IYK) beat the S&P 500 index by around 20% during the last five years.
Is Walmart a defensive stock?
Walmart. Large retail chains, in general, are typically good defensive stock picks, with Walmart being a prime example. This is a truly massive company and is, in fact, the world's largest private employer with over 2.3 million employees, according to Fortune.
Are energy stocks cyclical or defensive?
Cyclical stocks are companies whose underlying businesses tend to follow the economic cycle of expansion and recession. Some of these include sectors such as finance, energy and industrial.
What is defensive stock?
A defensive stock is a stock that provides consistent dividends and stable earnings regardless of the state of the overall stock market. There is a constant demand for their products, so defensive stocks tend to be more stable during the various phases of the business cycle. Defensive stocks should not be confused with defense stocks, ...
Why are defensive stocks less likely to go bankrupt?
Defensive stocks are also less likely to face bankruptcy because of their relative strength during downturns.
Why are defensive stocks good?
Defensive stocks offer the substantial benefit of similar long-term gains with lower risk than other stocks. On the downside, the low volatility of defensive stocks often leads to smaller gains during bull markets and a cycle of mistiming the market.
Why do investors abandon defensive stocks?
Unfortunately, many investors abandon defensive stocks out of frustration with underperformance late in a bull market, when they really need them most. After a downturn in the market, investors sometimes rush into defensive stocks, even though it is too late.
What are the advantages of defensive stocks?
Advantages of Defensive Stocks. Defensive stocks offer the substantial benefit of similar long-term gains with lower risk than other stocks. Defensive stocks as a group have a higher Sharpe ratio than the stock market as a whole. That is a strong argument that defensive stocks are objectively better investments than other stocks.
What are consumer staples?
Consumer Staples. Companies that produce or distribute consumer staples, which are goods people tend to buy out of necessity regardless of economic conditions, are generally thought to be defensive. They include food, beverages, hygiene products, tobacco, and certain household items.
Is a REIT a defensive investment?
Apartment real estate investment trusts ( REITs) are also deemed defensive, as people always need shelter. When looking for defensive plays, steer clear of REITs that focus on ultra-high-end apartments. Also, avoid office building REITs or industrial park REITs, which could see defaults on leases rise when business slows.
What does it mean to be a strong countercyclical stock?
A strong countercyclical stock must have enough cash on hand and a robust enough business to weather the peaks and periods of expansion if it is going to thrive when spending is tight.
What is countercyclical stock?
Countercyclical stocks are stocks whose prices tend to move opposite to the overall business cycle. If the market is trending upward, countercyclicals will be trending down. Likewise, if the market is tanking, countercyclicals can be expected to be trending upward.
What are some examples of countercyclical businesses?
Discount retailers, alcohol brands, and other “last resort” businesses such as payday lenders are generally cited as the prime examples of countercyclical businesses.
What happens to consumers during periods of economic prosperity?
During periods of economic prosperity, car manufacturers, airlines, many retailers, and restaurants benefit from consumer discretionary spending. Conversely, when the economy contracts, consumers tighten their belts and cut back on their discretionary spending.
Do countercyclical stocks do well in periods of economic uncertainty?
People defer purchasing cars or taking vacations and they often reduce spending on clothes and eating out. Countercyclical stocks, on the other hand, do well in periods of economic uncertainty and tend to underperform during peaks or periods of expansion.
What is a cyclical stock?
A cyclical stock is one whose underlying business generally follows the economic cycle of expansion and recession. Cyclical businesses perform well during economic expansions but typically experience significantly declining sales and profits during recessions and other challenging economic times.
What is non-durable cyclical?
Non-durable cyclicals have shorter useful lives or are consumed quickly (e.g., clothing and prepared foods). Each recession and economic downturn is usually different. In the COVID-19 pandemic, many of the industries mentioned above -- banking and retail, for example -- have been negatively impacted.
Why did stocks rebound?
Most companies' stocks subsequently rebounded as the economy began to recover, thanks in part to government stimulus programs and low interest rates. Here’s what you should know about investing in cyclical stocks.
Why does Warren Buffett like bank stocks?
But bank stocks can take a hit alongside the economy. Automotive Stocks. When the economy is performing poorly, people buy fewer new cars. Utility Stocks. Consumers need to use utility companies, regardless of the state of the economy. Retail Stocks.
Is Coca Cola a cyclical company?
General Mills ( NYSE:GIS) Coca-Cola ( NYSE:KO) To be clear, none of the companies on these lists are perfectly cyclical or perfectly defensive. Depending on the circumstances of a specific recession, some of the cyclical names could do relatively well, while the defensive stocks could see profits decline significantly.
Is auto stock cyclical?
Automakers: Consumers tend to hang on to their vehicles longer when recessions hit and are more inclined to buy new vehicles in prosperous times, so automaker stock s tend to be quite cyclical. Technology: Most (but not all) tech stocks are cyclical.
Is Walmart cyclical or countercyclical?
In fact, Walmart ( NYSE:WMT) stock can be considered countercyclical since the company often increases its sales during tough times.