A stock whose fortunes are less tied to the business cycle or the rise and fall of the economy. This stock typically has more predictable revenues relative to other stocks and types of investments such as bonds, commodities, etc. This include sectors like health care and consumer staples, oil, utilities, etc. Defensive stocks tend to weather difficult economic conditions and therefore look attractive during volatile markets. However, these stocks tend to lag behind the rest of the market at times of booms and economic expansion since demand doesn’t experience dramatic increases in market rallies. As investors’ appetite for speculative investments reduces, defensive stocks get in much more demand and outperform other assets.
A defensive stock is also referred to as a countercyclical stock.
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