Defensive Company

While Northrop Grumman may be a good example of a defense company, it does not necessarily meet the criteria for being a defensive company.

Defensive companies have steady business regardless of economic climate, due to their products being considered essential. They get to be "defensive," in that they do well in bad economies or bear markets, at least historically. Think: Drug manufacturers, telecom service providers, healthcare, food retailing, food, and energy.

Investments in defensive companies tend to hold up better during recessionary periods than other stocks, which might be sink or swim with the trend. The economy would have to get awfully bad before Joe Sixpack stopped paying for his drugs, cable, and food.

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Finance: What is Defensive Stock?1 Views

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Finance allah shmoop what is a defensive stock Well pretty

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much everyone looks like a genius in a big bull

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market right At least everyone who is invested in the

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market and not just sitting there holding cash well in

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a big bull market Every stock's going up everyone's making

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money he invested or getting richer on the best investment

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results of that bunch come from the aggressive investors or

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offensive groups of stocks the ones that exist on a

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hope and a prayer of massive growth They usually pay

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no dividend that khun traded hundreds of times trailing earnings

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or more and they're expected to more than double earnings

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every year for the next five years or more Offensive

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that's How owners of them get when those stocks get

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crushed in a bad market Yeah well the fed raises

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rates Bomb goes off in an oil field The president

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loses a high stakes arm wrestling match Something like that

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And all of a sudden the bull market is over

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the masses air selling selling selling and well that hundred

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times a dollar of earnings growth stock promising wifi enabled

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fidget spinners trading at one hundred bucks a share atleast

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it wass last month Yeah well it crater celestine Half

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of that ouch Fifty bucks a share and still expensive

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and trading down So what about that tortoise to this

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company's hair The big dumb slow moving oil company How

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about them It grows revenues It like something totally unexciting

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like gdp plus a percent in a good year It

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won't double earnings for like thirty years or more but

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it has and will pay a six percent dividend more

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or less forever And if you think about it while

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skittish linoleum our favorite company like that trades at forty

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bucks a share and pays two dollars forty cents a

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year in davy in a big bad ugly awful market

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Well sure it probably goes down a bit Two bucks

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to thirty eight a share five bucks to thirty five

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maybe even a bit more But while nervous marble has

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gone from one hundred to thirty down some seventy percent

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while skittish linoleum is gone from forty to thirty five

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in these bad two years of bear market itis down

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a few percent not too bad And meantime it's paying

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its two dollars forty cents a year dividend steady so

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you've gotten back four dollars and eighty cents in dividends

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so even down from forty to thirty five If you

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add back the dividend and you should know you're only

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down like twenty cents and we're going to forget about

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taxes here Big would compare that to nervous marble So

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yeah that's a defensive stock when the trades at low

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multiples of earnings and pays a big fat dividend and

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generally does well when the tide goes out and shows

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everyone else's you know not thing And so well there

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Yeah but every now and then it's Awfully nice to 00:02:47.788 --> [endTime] be the tortoise and not the hair

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