Defensive stocks / companies

A defensive stock is a company with relatively steady earnings, regardless of the economic climate. So whether the economy is growing or shrinking, demand for the offerings of a defensive company will usually remain consistent.

Defensive stocks can also be referred to as "non-cyclical" companies (the direct opposite of cyclical companies which see their earnings fluctuate with changes in economic conditions).

What type of companies are defensive stocks?

Defensive companies are normally those which offer essential products or services, such as food or utilities.

Demand for these products or services can be considered "inelastic" i.e. they are always needed irrespective of fluctuations in price.

Why are defensive stocks attractive to investors?

Although these companies may appear sluggish during periods of economic growth, income remains steady and continues to do so during economic downturns, when demand for other products or services can fall considerably.

It is this stability which can be attractive to investors, because of the reassurance that the value of any investment is likely to be maintained, no matter what.

On the other hand, because defensive companies do not tend to grow significantly during an economic boom, there is little potential to increase the value of any initial investment. Many investors may therefore choose to invest in defensive companies as part of an investment portfolio, to provide an element of stability and perhaps a regular source of income if the company pays dividends.

Where can I find information about defensive companies?

You can monitor the financial press to find out the latest information about defensive companies.

Our forum is also a great place to keep up-to-date with business news:

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